U.S. consumer prices rise on shelter costs, but inflation muted

U.S. consumer prices rose marginally in September, painting a weak inflation picture that should give the Federal Reserve ample room to keep interest rates low for a while.

The Labor Department said on Wednesday its Consumer Price Index edged up 0.1 percent last month as a rise in food and shelter costs offset a broad decline in energy prices.

The CPI had dropped 0.2 percent in August and economists had expected a flat reading in September.

U.S. Treasury debt prices fell on the slightly firmer reading, while the dollar rose modestly.

"This persistently weak inflation backdrop should continue to provide the key justification for the Fed to keep its policy stance accommodative, " said Millan Mulraine, deputy chief economist at TD Securities in New York.

In the 12 months through September, the CPI increased 1.7 percent after a similar rise in August. A separate index that tracks price changes for urban wage earners and clerical workers and is used to make cost-of-living adjustments for Social Security payments rose 1.7 percent in the third quarter from the year earlier.

Inflation has waned in recent months after quickening in the second quarter, in part as a strengthening dollar and slower economic growth in China and the euro zone dampen imported price pressures.

The weak inflation reading could revive concerns at the Fed that price pressures are running too low. That and a recent global equities market sell-off has led investors to push back their expectations for when the U.S. central bank will raise interest rates to late next year. The Fed has kept benchmark overnight rates near zero since December 2008.

Underlying inflation pressures were also muted in September despite increases in shelter and medical care costs.

The so-called core CPI, which strips out food and energy prices, ticked up 0.1 percent last month after being unchanged in August. In the 12 months through September, the core CPI rose 1.7 percent after advancing by the same margin in August.

The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI.

In September, energy prices fell for a third straight month, with gasoline prices slipping 1.0 percent after dropping 4.1 percent in August. Food prices gained 0.3 percent after rising 0.2 percent in August.

Within the core CPI, shelter costs increased 0.3 percent in September after rising 0.2 percent in August. The shelter index was up 3.0 percent in the 12 months through September, the largest gain since January 2008.

The medical care index increased 0.2 percent, with prices for nonprescription drugs increasing 1.5 percent and hospital services gaining 0.3 percent.

Airline fares declined for a third straight month, while prices for new motor vehicles and apparel were unchanged. Prices for used cars and trucks fell for the fifth straight month.