"Inflation is running at rates that are too low" Bernanke warned. "The risk of deflation is higher than desirable."
The possibility of rising inflation had also been a concern amid speculation of further easing of U.S. monetary policy. But the low CPI reading dissuaded some of those fears, lending more support to predictions that the Fed will buy more long-term Treasurys in November, said Mark Vitner, senior economist with Wells Fargo.
"There really isn't a whole lot of reason to worry about inflation right now, and that gives the Fed a free hand to do whatever they need to do," Vitner said.
The CPI report was also closely watched by policymakers this month, because the government used the data to determine Social Security beneficiaries will not get a cost of living increase in 2011.
Prices remain sluggish The so-called core CPI, which strips out volatile food and energy prices, rose at a 0.8% annual rate in September, down slightly from 0.9% in August.
Food prices posted their largest increase since October 2008, rising 1.4% during the year. Energy prices rose 3.8%.
For September, CPI rose just 0.1% month over month, lower than expectations. Prices were expected to have increased 0.2% in September, after climbing 0.3% the previous month, according to consensus estimates from Briefing.com.
Core CPI for the month was flat. Economists had expected it to have inched up 0.1%, after rising the same amount in August.
Nashville area’s median home price is highest in 2 yearsInflation (CPI)
