* Consumer price index unchanged in September
* CPI increases 1.7% year-on-year
* Core CPI rises 0.1%; up 2.4% year-on-year
* Weekly jobless claims fall 10,000 to 210,000
By Lucia Mutikani
WASHINGTON, Oct 10 (Reuters) - U.S. consumer prices were
unchanged in September and underlying inflation retreated,
supporting expectations the Federal Reserve will cut interest
rates in October for the third time this year amid risks to the
economy from trade tensions.
A strong labor market could, however, complicate matters for
the Fed. Other data on Thursday showed an unexpected decline in
the number of Americans filing claims for unemployment benefits
last week. Layoffs remain low even as companies are becoming
hesitant to hire more workers because of a slowing economy.
The unemployment rate is near a 50-year low of 3.5%. The
economic expansion, now in its 11th year, is under threat from
the 15-month-old U.S.-China trade war, slowing growth overseas
and a likely disorderly exit from the European Union by Britain.
The trade war has undermined business investment and helped
to drive manufacturing into recession. Growth is also being
restricted by the fading stimulus from last year's $1.5 trillion
tax cut package.
The Labor Department said the flat consumer price index last
month was the weakest reading since January and came as
increases in the cost of food and rents were offset by decreases
in the prices of energy and used cars and trucks.
The CPI edged up 0.1% in August. In the 12 months through
September, the CPI increased 1.7% after advancing by the same
margin in August.
Economists polled by Reuters had forecast the CPI nudging up
0.1% in September and rising 1.8% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI
climbed 0.1% after gaining 0.3% for three straight months.
The so-called core CPI was restrained by moderated gains in
healthcare costs, as well as declines in apparel, new motor
vehicles and communications prices. In the 12 months through
September, the core CPI increased 2.4%, matching August's rise.
The dollar slightly extended losses after the data, while
U.S. Treasury prices fell. U.S. stock index futures edged lower.
WEEKLY JOBLESS CLAIMS
The report came on the heels of data on Tuesday showing the
biggest drop in producer prices in eight months in September.
Minutes of the Fed's Sept. 17-18 policy meeting published on
Wednesday showed officials viewed risks to the longest economic
expansion on record "had increased somewhat."
The Fed cut rates in September after reducing borrowing
costs in July for the first time since 2008. Economists expect
another rate cut at the Fed's Oct. 29-30 policy meeting.
The central bank tracks the core personal consumption
expenditures (PCE) price index for its 2.0% inflation target.
The core PCE price index rose 1.8% on a year-on-year basis in
August and has fallen short of its target this year.
Benign inflation also suggests a moderate annual increase
for Americans receiving Social Security benefits. Based on July,
August and September inflation data, recipients could see a 1.6%
cost of living adjustment in the new fiscal year.
Economists expect inflation will pick up and breach its
target in 2020 following the recent broadening of U.S. tariffs
on Chinese goods to include a range of consumer goods. A
tightening labor market is also expected to support inflation.
In another report on Thursday, the Labor Department said
initial claims for state unemployment benefits dropped 10,000 to
a seasonally adjusted 210,000 for the week ended Oct. 5.
Economists had forecast claims unchanged at 219,000 in the
latest week. Employers are holding on to their workers, even as
demand for labor is ebbing.
Job openings fell to a 1-1/2-year low in August, the
government reported on Wednesday.
Nonfarm payrolls rose by 136,000 jobs in September, down
from 168,000 in August, the government reported last week. The
three-month average gain in private employment fell to 119,000,
the smallest since July 2012, from 135,000 in August.
The CPI report showed energy prices fell 1.4% in September
after dropping 1.9% in the prior month. Gasoline prices declined
2.4% after falling 3.5% in August. Food prices gained 0.1% after
being unchanged for three straight months. Food consumed at home
was unchanged.
Owners' equivalent rent of primary residence, which is what
a homeowner would pay to rent or receive from renting a home,
rose 0.3% in September after rising 0.2% for two consecutive
months.
Healthcare costs climbed 0.2% last month after jumping 0.7%
in August, which was the biggest gain in three years. Apparel
prices fell 0.4% after gaining 0.2% in the prior month. The
government early this year introduced a new method and data to
calculate the cost of apparel.
Used motor vehicles and trucks prices decreased 1.6% in
September after rising for three straight months. Prices for new
motor vehicles dipped 0.1%. There were increases in the costs of
household furnishings, motor vehicle insurance, airline fares
and tobacco.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)