Monthly inflation rose by 0.4 percent, which was higher than projected but less than August’s 0.6 percent increase. Rising shelter costs accounted for more than half of the monthly consumer price index (CPI) increase.
Core inflation, which excludes volatile energy and food costs, eased to 4.1 percent year over year in September, down from 4.3 percent, and matched economists’ expectations. Core CPI edged up 0.3 percent, unchanged from the previous month.
The White House welcomed the latest inflation data, championing the core inflation rate, which has slowed to its lowest level in two years.
Inside the CPI Report
In September, shelter costs, which include rent and mortgage payments, were the largest contributor to the CPI, climbing 0.6 percent monthly and 7.2 percent from a year ago.Housing costs have soared this year as the average monthly mortgage payment and rent are above $2,000. This has been the result of an undersupplied market and higher interest rates, experts warn. Because many homeowners secured historically low mortgage rates during the coronavirus pandemic, households are refraining from selling their residential properties, especially as the average 30-year fixed-rate mortgage is marching toward 8 percent.
The overall energy index rose 1.5 percent monthly and dipped 0.5 percent from a year ago. The month-over-month jump included an 8.5 percent surge for fuel oil and a 1.3 percent increase for electricity. Natural gas utility service fell by 1.9 percent.
Global energy markets have rallied significantly since the end of June, although oil and gas prices have eased this month. The dramatic jump has been driven by worldwide supply fears as key oil-producing countries, such as Saudi Arabia and Russia, have reduced output and exports.
Food prices jumped by 0.2 percent month over month, with supermarket prices flat and restaurant prices rising by 0.4 percent. But the food index is still 3.7 percent higher than it was at the same time last year.
Within the food category, there were many notable gains for kitchen staples. Prices for beef and veal swelled by 0.6 percent, bacon surged by 4.8 percent, eggs rose by 0.9 percent, milk climbed by 1.4 percent, and coffee increased by 0.7 percent.
New vehicle prices increased by 0.3 percent, while prices for used cars and trucks fell by 2.5 percent. Apparel prices decreased by 0.8 percent.
On the services front, transportation prices rose by 0.7 percent, and medical care prices increased by 0.3 percent.
The higher inflation last month also led to a 0.2 percent decline in real (inflation-adjusted) average hourly earnings, the BLS noted in a separate release. Real average weekly earnings tumbled by 0.2 percent.
Markets Reaction
U.S. stocks fell in afternoon trading on Oct. 12, pressured by rising Treasury yields, as traders fretted over new data that showed persistent U.S. inflation. Treasury yields had recently touched their highest levels in 16 years, although they have eased in recent sessions.A Pre-Indicator of Inflation
Following the release of the September producer price index (PPI), market analysts have warned about a potential reacceleration of inflation.Wholesale prices climbed by 0.5 percent month over month and climbed to an annualized rate of 2.2 percent, up from an upwardly revised 2 percent. The core PPI also rose by 0.3 percent on a monthly basis and surged to 2.7 percent year over year.
The higher-than-expected increase in the PPI was fueled by higher energy and food prices.
Economists contend that the PPI is a worthwhile measurement because it can serve as a precursor to the CPI, since it gauges the costs of producing consumer goods and services. The higher costs are then passed on to the consumer in the form of higher prices.
Increase or Pause?
For now, the futures market is mostly pricing in a rate pause at the policy meetings in November and December of the Federal Open Market Committee (FOMC), according to the CME FedWatch Tool.A handful of Fed officials have suggested that interest rates are high enough and that even the recent rally in Treasury yields could help do some of the U.S. central bank’s work.
Minutes from the September FOMC meeting suggest that officials debated whether to pull the trigger on one more rate increase. As rate-setting committee members discussed the need for additional policy tightening, there was one uniform opinion: Rates would need to remain in restrictive territory until the Federal Reserve was confident that inflation is sustainably returning to its 2 percent target level.
“A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted,” the minutes read.
While policymakers agreed that they need to “proceed carefully” on future decisions, they concurred that “policy should remain restrictive for some time until the committee is confident that inflation is moving down sustainably toward its objective.”
“Today’s .4% rise in Sept. #CPI, including a .3% rise in core, further confirms that the #Fed is no where near achieving its 2% annualized #inflation target,” Peter Schiff, the chief global strategist at Euro Pacific Capital, wrote on X, previously known as Twitter. “YoY headline CPI is 3.7% and YoY core is 4.1%. When will investors finally figure out that the inflation war has been lost?”
Giuseppe Sette, the president of investment research services firm Toggle AI, thinks Fed rates are “already appropriate” and “the hiking cycle is done for good.”
