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Economic Report: Consumer prices jump again and CPI shows little relief from high inflation


The numbers: The U.S. cost of living rose 0.4% in September and pointed to high inflation persisting through the end of the year, reinforcing the view the Federal Reserve will keep raising interest rates aggressively to try to curb rampant price increases.

Economists polled by The Wall Street Journal had forecast a 0.3% increase.

The yearly rate of inflation slipped to 8.2 from 8.3%. Inflation peaked at a nearly 41-year high of 9.1% in June.

In a more worrisome sign, the so-called core rate of inflation that omits food and energy prices jumped a sharp 0.6%. Wall Street had forecast a 0.4% gain.

The increase in the core rate over the past year climbed to a new cycle peak of 6.6% from 6.3%, marking the biggest gain in 40 years.

The Fed views the core rate as a more accurate measure of future inflation trends.

The cost of staples such as food, rent, medical care and new cars all rose last month.

Inflation rose an average of less than 2% a year in the decade preceding the pandemic.

Big picture: The Fed has embarked on a series of interest-rate increases aimed at quenching the worst inflation since the early 1980s, but progress has been slow.

Still, the higher cost of borrowing is expected to weaken the economy over the next year and pull inflation lower. Prices tend to fall when consumers spend less and demand for goods and services dry up.

The Fed may have to raise rates so high to beat back inflation, however, that it could tip the economy into recession. The annual rate of inflation is more than quadruple the pre-pandemic levels of less than 2%.

Top officials signaled they will do what it takes to beat down inflation — even at the cost of recession — at the Fed’s last big meeting in September.

Key details: The cost of gasoline declined for the third month in a row.

Falling gasoline prices kept inflation in check toward the end of summer, but they may not go any lower. The oil cartel OPEC is cutting production and prices are edging higher again.

The cost of groceries, meanwhile, surged again and are up 13% in the past year. The last time prices rose that fast was in 1979.

Rent leaped 0.8% in September. The Fed is especially worried about the cost of housing since it’s one of the biggest contributors to inflation and shows little sign of reversing.

Rents have risen 7.2% in the past year, marking the biggest gain since 1982.

The cost of medical care is also on the rise again. Prices jumped 0.8% in September, pushing the increase over the past year up to 6%. That’s the largest increase since 1993.

Prices also rose last month for education, new cars, home furnishings and auto insurance. Prices fell for used vehicles, clothes and communications.

Inflation-adjusted wages fell 0.1% in September. Real wages have fallen 3% in the past year, as high inflation eats away at the purchasing power of U.S. households.

Looking ahead: “U.S. inflation remained steamy in September,” said senior economist Sal Guatieri of BMO Capital Markets. “Many more items are rising quickly than falling.”

“After today’s inflation report, there can’t be anyone left in the market who believes the Fed can raise rates by anything less than 75 basis points at the November meeting,” said Seema Shah, chief global strategist at Principal Asset Management.

Market reaction: The Dow Jones Industrial Average

and S&P 500

surged in Thursday trades after an early decline. The interest rate on the 10-year Treasury note leaped to as high as 4% before subsiding.

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