As reported on the September inflation report, the Consumer Price Index increased 8.2 percent through September, a persistently high result driven by higher food, rent, and other costs.
The fresh inflation statistics published Thursday indicated that consumer prices rose significantly faster than predicted. A key indicator reached a new 40-year high, which is terrible news for the Federal Reserve as it attempts to rein in the most rapid price rises in four decades.
Analysis of the September Inflation Report
Overall inflation rose 8.2 percent in September, higher than experts polled by Bloomberg projected, but a slight decrease from the 8.3 percent rise in August. The rate is still exceedingly high.
After excluding volatile items like gasoline and food from inflation estimates to get a clearer sense of underlying trends, prices rose 6.6 percent, indicating a significant re-acceleration in the so-called core index. The September Inflation report showed a new high for the index this year and was the quickest yearly growth since 1982.
Fed officials and Wall Street analysts are paying more attention to monthly numbers, particularly what transpired between August and September. While yearly figures represent what has occurred cumulatively over the previous 12 months, monthly statistics show how prices are moving in real-time.
And the monthly figures provided even more compelling reasons to be concerned. Overall inflation increased by 0.4 percent in September’s inflation report, a significant increase over the previous month’s 0.1 percent rate. The core index increased by 0.6 percent, mirroring the previous month’s large rise. That is way too quick for the Fed.
Because fast inflation has lasted more than a year and a half and has spread to a wide range of commodities and services — and because it is proving to be so stubbornly swift — central bankers are likely to stay laser-focused on cooling the economy and dragging it down. They have hiked interest rates five times this year and have indicated that they may discuss a half-point or three-quarters-point rise at its future meeting. The latest data will almost certainly strengthen the argument for a larger rise.
September Inflation Report: What Next for the Fed?
While Fed policy takes time to take effect, inflation is rising in demand-sensitive sectors that the Fed believes it can influence, so the numbers are likely to signal to policymakers that they have more work to do in slowing consumption and the labor market while also wrestling inflationary forces under control.
“This is concerning — the trend is quite disturbing,” said Blerina Uruci, a T. Rowe Price U.S. economist, who noted that the high inflation number likely confirmed a three-quarter point hike in November and may require the Fed to stay aggressive after that. “It’s difficult to see how they’ll make a case for slowing down in December.”
Many economists anticipate inflation to reduce as supply chains mend, drops in used vehicle costs reach purchasers, and consumer demand slows. However, that process was always expected to be slow as rents and other service expenses continued to rise.
However, even predicted improvement is failing to materialize. Underlying inflation, as assessed by the core index, is resuming its rise following a brief dip earlier this summer. Worryingly, service sectors such as pet care and dental care are seeing significant price rises. This might indicate that tight labor markets are increasing salaries and costs.
“Persistent inflation is beginning to sneak into the economy,” said Steve Rick, chief economist of CUNA Mutual Group. “We are really worried about this becoming a wage-price spiral, with salaries increasing and making it difficult to reduce inflation anytime soon.”
The Fed aspires for annual inflation of 2% on average, but it defines this using a separate inflation gauge: the Personal Consumption Expenditures measure, which will not be reported until late October.
Featured Image- Megapixl @ Nazariykarkhut
Author Okoro Chinedu 
