31 October 2005, 17:12  U.S. incomes and inflation bounced higher in September

U.S. incomes and inflation bounced higher in September on the impact of destructive hurricanes, the Commerce Department reported Monday. Incomes rose 1.7% in September after plunging a revised 0.9% in August. Economists were expecting incomes to rise 0.3%, according to a survey conducted by MarketWatch. The wild swing was due to the impact of the storms on rental income, which were depressed severely in August by uninsured losses from Hurricane Katrina. Excluding the impact of uninsured losses on property owners, however, incomes rose 0.5% in September after rising 0.3% in August. Other effects of the storm on income from wages or from owning a small business could not be separately identified, the government said. Meanwhile, prices soared on higher energy prices. The personal consumption expenditure price index rose 0.9% in September, the biggest increase since February 1981. Excluding food and energy prices, however, the core PCE price index rose a more moderate 0.2% after three months of 0.1% gains. Core prices are up 2% in the past year, the same as in August. Core inflation rates are at the top end of the Federal Reserve's "comfort zone," Fed officials have said. The Federal Open Market Committee meets on Tuesday to consider a 12th straight interest rate increase to bring the federal funds rate to 4% from 3.75% currently. Analysts and financial markets are certain the FOMC will boost rates to keep a lid on core inflation. Consumer spending increased 0.5% in September, as expected. Adjusted for inflation, real spending fell 0.4% in September after dropping 1% in August. On Friday, the Commerce Department said strong consumer spending helped boost economic growth at a 3.8% pace in the third quarter, but most of the spending came in July after a very strong June, which started the third quarter on a high note. Not so this quarter: real spending in September was 0.6% below the third-quarter average, giving the economy some headwinds heading into the fourth quarter. Real disposable incomes (inflation-adjusted) increased 1% in September. The personal savings rate improved to a negative 0.4% after falling to a post-Depression low of 1.8% in August. The personal savings rate has been negative for four straight months. Income from wages increased 0.3% in September. Proprietors' income rose 4.9%. Rental incomes were not computed monthly, but for the third quarter, rental incomes with capital consumption adjustment fell 99.5%.

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