The U.S. annual inflation rate for September remained steady at 3.7%, slightly surpassing the anticipated 3.6%, as the Bureau of Labor Statistics (BLS) reported. Monthly, inflation rose 0.4%, decelerating from August’s 0.6% but still higher than expected. A large portion of the increase can be attributed to the rising costs of shelter, which accounted for more than half of the monthly Consumer Price Index (CPI) surge.
Excluding the unpredictable energy and food sectors, core inflation settled at 4.1% year over year for September, aligning with economists’ predictions and marking a decrease from the previous 4.3%. The core CPI saw a modest rise of 0.3%, consistent with the prior month.
President Joe Biden expressed optimism regarding the inflation figures, highlighting the deceleration in the core inflation rate to a two-year low. He emphasized the achievements of his economic policies, noting the sustained low unemployment rate and the highest participation of working-age Americans in the workforce in two decades. Despite the fact that the GOP has pointed out that full-time jobs have decreased and the increase is merely for part-time workers.
A Closer Look at the CPI Report:
- Shelter Costs: These costs, encompassing rent and mortgage payments, were the primary drivers of the CPI, with a monthly rise of 0.6% and an annual increase of 7.2%. This year’s surge in housing costs, with average payments exceeding $2,000, is attributed to a market shortage and rising interest rates. Given the historically low mortgage rates obtained during the pandemic, homeowners’ reluctance to sell further exacerbates the situation.
- Energy: The overall energy index saw a monthly increase of 1.5% but a yearly decrease of 0.5%. This includes a significant 8.5% rise for fuel oil and a 1.3% hike for electricity, while natural gas utility service decreased by 1.9%.
- Food: Monthly food prices increased by 0.2%, with a notable price rise for essentials like beef, bacon, eggs, milk, and coffee. Despite this, the food index remains 3.7% higher than the previous year.
- Vehicles and Apparel: New vehicle prices rose by 0.3%, while used vehicles saw a decline of 2.5%. Apparel prices decreased by 0.8%.
- Services: Transportation services saw a 0.7% increase, and medical care services rose by 0.3%.
The BLS also highlighted a 0.2% drop in average hourly and weekly earnings due to inflation.
Market Response and Future Projections:
Following the release of the inflation data, U.S. financial markets remained relatively stable. The Treasury market exhibited varied yields between short- and long-term bonds, with the benchmark 10-year yield dropping slightly. The U.S. Dollar Index, reflecting the dollar’s strength against other currencies, has shown impressive growth in 2023, rising over 6% in the past quarter.
Inflation Indicators and Federal Decisions:
The recent release of the September Producer Price Index (PPI) has prompted analysts to caution about potential inflation acceleration. The PPI, which measures the production costs of consumer goods and services, can act as a precursor to the CPI. The recent PPI data was driven by rising energy and food prices.
However, some relief might be on the horizon as energy prices have shown signs of stabilization. The futures market anticipates a pause in rate adjustments in the upcoming Federal Open Market Committee (FOMC) meetings. The FOMC has been deliberating on further rate hikes, emphasizing the need for a restrictive policy until inflation aligns with their 2% target.
Experts like Peter Schiff and Giuseppe Sette have weighed in on the inflation situation, with Schiff highlighting the Federal Reserve’s challenges in achieving its inflation target and Sette opining that the current rates are apt and further hikes may not be necessary.