Fed’s Rate Decision May Have Come Down to Phone Plan Changes

(Bloomberg) -- A record jump in the price of cellular phone services helped tip a key measure of US inflation above forecasts, likely sealing the deal for a Federal Reserve interest-rate increase next week.

The consumer price index excluding food and energy climbed 0.3% in August from a month earlier, according to Bureau of Labor Statistics data out Friday. The median estimate in a Bloomberg survey called for a 0.2% increase. The 5.9% surge in wireless telephone services prices alone added about a 10th of a percentage point to the core reading.

That gauge largely reflects prepaid and monthly plans offered by cellular carriers.

Economists at Bank of America Corp., Barclays Plc and Pantheon Macroeconomics flagged recent plan changes by major carriers like AT&T Inc. and T-Mobile US Inc. as likely culprits. The BLS declined to elaborate on how the changes at those carriers may have impacted the number.

AT&T said earlier this year that it would implement price increases on certain plans in August. T-Mobile also recently retired some of its legacy plans, resulting in price increases for consumers.

Even so, many Fed-watchers still saw a case for raising interest rates, even if underlying inflation was lifted last month partly by one-time factors.

"While it is true that the wireless index added 10bps to the core CPI today, and that the core ex-wireless would have been 0.20%, I don't think the Fed will have the luxury of slicing and dicing the data at the meeting next week," Omair Sharif, president of Inflation Insights LLC, said in a note.