Inflation accelerated in the United States in September, as the cost of housing and other necessities added pressure on households, wiping out wage gains for many and ensuring that the Federal Reserve would keep raising interest rates aggressively.
On Thursday, the government said consumer prices rose 8.2% in September from a year earlier. On a monthly basis, prices rose 0.4% from August to September after rising 0.1% from July to August.
However, with the exception of the volatile categories of food and energy, so-called core inflation jumped last month – a sign that the Federal Reserve’s five interest rate increases this year have done little so far to quell inflation pressures. Core inflation rose 0.6% in the August-September period and 6.6% over the past 12 months. The annual base figure is the largest increase in 40 years. Fundamental prices usually provide a clearer picture of underlying price trends.
Major US markets swung sharply lower, with Dow Jones Industrial Average futures moving from several hundred points to 400 points in seconds. Markets in Europe also fell.
Thursday’s report marks the final numbers for US inflation ahead of the November 8 midterm elections after a campaign season in which price hikes sparked public concern, with many Republicans blaming President Joe Biden and Democrats in Congress.
Inflation has inflated household grocery bills, rent and utility costs, among other expenses, causing hardship for many and deepening pessimism about the economy despite strong job growth and historically low unemployment.
With the election looming, Americans are increasingly taking a dim view of their finances, according to a new poll by the Associated Press-NORC Center for Public Affairs Research. Nearly 46% of people describe their personal financial condition as poor, up from 37% in March. This significant drop contrasts with the mostly flat readings that have persisted during the pandemic.
The September inflation numbers are unlikely to change the Fed’s plans to keep raising interest rates aggressively in an effort to control inflation. The Fed has boosted its key short-term interest rate by 3 percentage points since March, the fastest pace of increases since the early 1980s. These increases are intended to raise borrowing costs for mortgages, auto loans and business loans and to cool inflation by slowing the economy.
The minutes of the last meeting of the Federal Reserve in late September showed that many policymakers have yet to see any progress in their fight against inflation. Officials expected that they would raise the benchmark interest rate by an additional 1.25 percentage points during their next meetings in November and December. Doing so will put the Federal Reserve’s key interest rate at a 14-year high.
Besides lower gas prices, economists expect used car prices to lower or at least curb inflation in the coming months. Wholesale used car prices have fallen for most of this year, although the declines are yet to be seen in consumer inflation data. (Used car prices soared in 2021 after factories closed and supply chain shortages reduced production.)
Major retailers are also beginning to offer early discounts for the holiday shopping season, after it collected excess stocks of clothing, furniture and other goods earlier this year. These price cuts may have lowered inflation in September or will do so in the coming months.
Walmart said it will offer deep discounts on items such as toys, household goods, electronics and cosmetics. Target started offering holiday deals earlier this month.
However, prices for services – particularly rents and housing costs – are still consistently high and will likely take longer to fall. Prices for health care, education, and even veterinary services are still rising rapidly.
Rafael Bostic, president of the Federal Reserve Bank of Atlanta, noted in remarks last week that “increases in the prices of services tend to be more consistent than increases in the prices of goods.”
Rising rental costs are a thorny issue for the Federal Reserve. Real-time data from websites like ApartmentList indicates that rents on new leases are starting to fall.
But government action tracks all rent payments – not just those for new leases – and most of them do not change from month to month. Economists say the dip in new leases could take a year or more before it feeds on government data.
Copyright © 2022 by The Associated Press. All rights reserved.
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