WASHINGTON–The Consumer Price Index rose 8.2% in the year through September, showing it remains stubbornly high even as the Fed has been aggressively raising rates.
Primary factors driving the high inflation numbers, according to the Labor Department, have been increases in food prices and rent, while values on used cars have not declined at the rate many analysts had been predicting.
“Price increases are not slowing down. The September Consumer Price Index rose by 0.4% on a monthly basis, a higher rate than in July and August. Housing, food, and medical care prices were major drivers,” said CUNA Senior Economist Dawit Kebede. “A persistent increase in housing, food, and energy prices -- which constitute over 50% of spending for the average consumer -- is straining household budgets. Low- and middle-income households are spending most of their income on these basic necessities despite recent increases in nominal wages.
“The Federal Reserve is expected to raise interest rates by 75 basis points for the fourth time when they meet in November,” Kebede continued. “Members of the Federal Open Market Committee believe that a softening labor market and low economic growth will reduce the pressure on inflation. This would cause more pain for low- and middle-income households as they are among the first to be affected by rising unemployment.”
125 Point Increase By End of Year
Meanwhile, NAFCU Chief Economist and VP of Research Curt Long added, “According to data released by the Bureau of Labor Statistics (BLS), the overall consumer price level climbed by 0.4% in the month of September. This was higher than expected and keeps the FOMC on target for another large rate increase next month. Gas prices declined for the fourth consecutive month in September, but that may not last as OPEC announced production cuts of two million barrels a day. The cost of shelter in September reached the highest monthly growth rate in over 30 years. Rental prices are falling, but since the shelter index operates on a lag, it will likely not reflect current trends until early 2023. Used car prices fell for the third consecutive month, but the declines have been more modest than private data aggregators are reporting, and new car prices continue to rise. Inflationary pressures have broadened, and it is not the case that a small number of isolated areas of the economy are driving price growth.
“That fact is likely to be as important as the overall inflation figure for the FOMC. NAFCU’s expectation of a 75-basis point hike in November remains the median market view, and December will bring at least a 50-basis point increase,” Long continued.
Fastest Pace Since 1982
According to the Labor Department, prices increased 6.6% after stripping out fuel and food — which tend to be volatile and are often removed from inflation readings to allow for a better sense of underlying trends — a notable re-acceleration in the so-called core index.
That was a fresh peak for the index this year, and was the fastest pace of annual increase since 1982, according to an analysis by the New York Times.
“While the annual numbers reflect what has happened cumulatively over the past 12 months, the monthly data give a clearer snapshot of how prices are evolving in real time,” the Times added. “And those monthly numbers offered even more pronounced reasons to worry. Overall inflation climbed 0.4% in September, much more than last month’s 0.1% reading. The core index climbed 0.6%, matching a big gain in the prior month. That pace is far too fast for the Fed.”
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