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Ben Bernanke: Inflation Levels Too low

Fed Chairman spoke on monetary policy Friday morning, as the labor department reports that core rate of inflation remained unchanged.



) -- Stocks were rising on Friday after

Federal Reserve

chairman Ben Bernanke reiterated that the central bank would consider additional accommodation to support economic recovery and return inflation to levels consistent with the central bank's mandate.

In a

speech on monetary policy Friday morning, the chairman said the central bank was weighing the option to resume buying treasury bonds to stimulate the economy but was still debating the size and pace of the purchases.



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rose 0.4% while the

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and the

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rose 0.1% and 0.9% respectively.

Bernanke spoke at length about the current levels of inflation, considering them "too low," with the risk of deflation being more than desirable. He also said he expected inflation levels will likely remain subdued as inflation expectations remain stable and substantial slack in productive resources restrain cost pressures.

While he said the rate of inflation was below the levels consistent with the Fed's mandate, Bernanke did not specify a target rate for inflation. He merely argued that the central bank would prefer a "modestly positive" rate of inflation. The rationale being, a higher rate of inflation allows for higher nominal interest rates, which then provides the central bank greater latitude to reduce rates when needed to stimulate the economy. It also keeps the threat of deflation under check.

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Bernanke's comments came as the labor department reported that the core rate of inflation at the consumer level remained unchanged in September.

Consumer prices rose 0.1% in September after rising 0.3% in the prior month, led by increase in food and energy prices, the Labor Department said on Friday. The rise was slightly below the 0.2% increase the market was expecting, according to estimates from

The core rate of inflation, a more relevant measure because it excludes volatile food and energy items, remained unchanged. Consensus was calling for a 0.1% increase.

On a year-on-year basis, consumer prices rose 1.1%. Excluding food and energy, the measure rose only 0.8%, the lowest 12 month increase since 1961.

Food related items rose 0.3% in September after rising 0.2%, while gasoline prices rose 1.6%. Among other items, the shelter component of the index was unchanged. The index for apparel, household items, recreation items and used cars declined in September, offsetting a sharp increase in medical care and a slight increase in the index for new vehicles, the report said.

On Thursday, the labor department said

the core rate of inflation at the wholesale level rose 0.1%, for the second month in a row.

Markets will continue to pay attention to inflation numbers ahead of the Fed's next policy meeting in early November. The central bank's preferred measure of inflation is the core PCE, or personal consumption expenditure, which will be released at the end of the month.

-- Written by Shanthi Venkataraman in New York

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