Consumer inflation rose faster than expected in September, CPI report shows
Labor Department releases closely watched September CPI inflation report
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Inflation accelerated in September as the pace of consumer price growth trended higher due to elevated energy prices.
The Bureau of Labor Statistics (BLS) said on Wednesday that the consumer price index (CPI) – a broad measure of how much everyday goods like gasoline, groceries and rent cost – increased 0.6% on a monthly basis and is up 3.7% from a year ago.
Expectations vs. reality
The monthly figure was in line with the estimates of economists polled by LSEG, while the annual figure came in hotter than the estimate of 3.6%. The monthly data rate picked up following a reading of 0.4% in August, while the annual figure also trended higher from 3.4% the prior month.
So-called core prices, which exclude volatile measurements of gasoline and groceries to better assess price growth trends, were up 0.3% on a monthly basis and 2.6% from a year ago. Both of those figures were hotter than the expectations of economists polled by LSEG, who predicted a monthly rise of 0.2% and an annual increase of 2.5%.
The monthly figure cooled slightly from August, when it rose 0.3%, while the annual figure rose from 2.4% in the previous report.
US ECONOMY GREW AT A FASTER PACE THAN EXPECTED IN SECOND QUARTER
The cost of living breakdown
High inflation has created severe financial pressures in recent years for most U.S. households, which are forced to pay more for everyday necessities like food and rent. Price hikes are particularly difficult for lower-income Americans because they tend to spend more of their already-stretched paychecks on necessities and have less flexibility to save.
Energy prices rose 5.2% on a monthly basis in September and have increased 20.4% from last year. That increase follows a 2.1% monthly increase in August.
Gasoline prices increased 9.1% from the prior month in September and are up 34.2% on an annual basis, and the BLS noted the gasoline index accounted for over half of the monthly rise in the headline CPI. Electricity costs increased 0.2% on a monthly basis and are up 4.4% over the past 12 months.
Inflation rose more than expected in September. (Li Rui/Xinhua via Getty Images)
WHY THE FED ISN'T READY TO DECLARE VICTORY ON INFLATION
Food prices were unchanged for the month of September and are up 2.5% compared with last year. The food at home index decreased 0.1% on a monthly basis and is up 1.8% from a year ago. The food away from home index rose 0.2% for the month and is up 3.5% from last year.
The meats, poultry and fish index declined 0.4% from the prior month in September, and is up 2.2% from a year ago. Beef and veal prices fell 1% in September and are up 3.5% from a year ago. Egg prices declined 1.3% in September and are down 20.6% from last year as supply normalizes after an avian flu outbreak.
The fruits and vegetables index increased 0.5% on a monthly basis in September and is up 3.7% from a year ago. Coffee prices rose 0.9% in September and are up 7.1% compared with last year.
Housing prices rose 0.4% month over month in September and are 3.2% higher than a year ago. Tenants' and household insurance costs increased 0.2% on a monthly basis and were up 3% from last year.
The transportation services index showed prices up 0.6% on a monthly basis and are up 2.7% from a year ago. Airline fares increased 1.2% from the prior month in September and are up 22.4% from last year.
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What experts are saying
Vanguard senior economist Adam Schickling said that the "latest inflation report reinforces what we've been saying for several months: inflation is proving more persistent than many expected, particularly across services. While energy remains a factor, the more important story is that demand has stayed remarkably resilient."
"We're entering a phase where stronger productivity, moderating wage growth, and more price-sensitive consumers should help bring inflation lower, but patience will be required," Schickling added.
Tim Urbanowicz, chief investment strategist for innovator ETFs at Goldman Sachs Asset Management, said that "today's print puts the Fed's tactical breather priced into the market for October in question."
"With $100-plus crude adding friction to already sticky core prices, the latest data increasingly complicates the disinflation narrative and may limit the Fed's flexibility," Urbanowicz added.
Federal Reserve Chair Kevin Warsh and central bank policymakers will make their next interest rate decision in late October. (Li Yuanqing/Xinhua via Getty Images)
What does it mean for the Fed?
The Federal Reserve will hold its next monetary policy meeting on October 27-28, and the market's expectation as far as interest rates shifted toward a rate hike.
The probability of the Fed leaving the benchmark federal funds rate at its current target range of 3.75% to 4% fell from 77.9% on Tuesday to 58.5% on Wednesday following the September CPI inflation report, the CME FedWatch tool showed.
The odds of a 25 basis point rate hike rose from 22.1% yesterday to 41.5% on Wednesday, the tool showed.
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How did the market respond?
The benchmark S&P 500 Index fell 0.95% during Wednesday morning trading.
The Dow Jones Industrial Average was down 0.13%, while the Nasdaq Composite fell 1.42%.