- Consumer price index rises 0.4% in September
- Accommodation costs account for more than half of the increase in the CPI
- Core CPI rises 0.3%; increases by 4.1% year-on-year
- Weekly jobless claims remain unchanged at 209,000
WASHINGTON, Oct 12 (Portal) – U.S. consumer prices rose in September on a surprise rise in rental costs, but a steady weakening in underlying inflation pressures supported financial market expectations that the Federal Reserve would not raise interest rates next month.
Thursday’s Labor Department report showed annual consumer price increases excluding the volatile food and energy components last month were the lowest in two years.
Economists expected the rise in rents, which was at odds with rising multifamily housing supply and independent surveys showing a decline in asking rents, to reverse in the coming months. However, with the labor market still tight, hitting the Fed’s 2% inflation target could be a long shot, so it’s likely the Federal Reserve could keep interest rates high for longer.
Higher yields on US government bonds and the conflict in the Middle East are also likely to prevent the Fed from further tightening its monetary policy.
“The overall picture is that the trend is still quite encouraging, but the struggle continues,” said Olu Sonola, head of U.S. regional economics at Fitch Ratings in New York. “Given the recent rise in long-term interest rates, they (Fed officials) may now want to extend the pause through December.”
The consumer price index rose 0.4% last month, with a 0.6% increase in the cost of accommodation accounting for more than half of the increase. The CPI rose 0.6% in August, the largest increase in 14 months. Accommodation costs rose 0.3% in August.
Gasoline prices rose 2.1% after rising 10.6% in August. Food prices rose 0.2% for the third month in a row.
Food prices rose slightly by 0.1%. Consumers paid more for meat, fish and eggs, but prices for cereals and baked goods fell for the first time since June 2021. Prices for fruit and vegetables remained unchanged, as did those for soft drinks.
In the 12 months to September, the CPI rose 3.7%, after rising by the same margin in August. Consumer prices have fallen year-on-year from a peak of 9.1% in June 2022. Economists polled by Portal had forecast the CPI would rise 0.3% month-on-month and 3.6% year-on-year.
Portal graphics
Excluding the volatile food and energy components, the CPI rose 0.3%, matching the August increase. Owners’ equivalent rent, a measure of the amount homeowners would pay in rent or earn from renting out their property, rose 0.6%.
That was the biggest increase since February and followed a 0.4% increase in August. Independent measurements continue to show a downward trend in rents. Rent metrics in the Consumer Price Index typically lag several months behind independent benchmarks.
“We will have to wait for more data to see if this is just a blip or if there is something more fundamental driving the increase, such as higher rent increases in larger cities offsetting weaker increases in smaller cities,” Stephen said Juneau, US economist at Bank of America Securities in New York.
The so-called core CPI was also boosted by a 3.7% increase in the cost of away-from-home accommodation, ending three straight monthly declines. There were increases in the cost of automobile insurance, leisure, personal care, new vehicles, and home furnishings and operations.
But prices for used cars and trucks fell 2.5%, while the cost of clothing fell 0.8%. Core CPI rose 4.1% year-on-year in September, the smallest increase since September 2021, after rising 4.3% in August. Over the past three months, core CPI rose 3.1%.
Higher rents caused inflation in the non-energy services sector to accelerate by 0.6%. Falling used car and truck prices exacerbated core goods deflation. Prices for core goods fell 0.4%.
Stocks on Wall Street traded higher. The dollar rose against a basket of currencies. US Treasury bond prices fell.
Portal graphics
Tight labor market
Using CPI and producer price data, economists estimated that the core personal consumption expenditures (PCE) price index rose 0.3% in September after rising slightly by 0.1% in August. The core PCE price index is expected to rise 3.7% year-on-year in September, following a 3.9% rise in August.
It is one of the inflation metrics that the Fed uses for monetary policy. The financial markets largely assume that the Fed will leave interest rates unchanged at their level from October 31st to November 31st. 1 policy session, according to CME Group’s FedWatch tool. They saw less than a 40% chance of a rate hike in December.
That belief was bolstered by comments from senior Fed officials on Monday that rising long-term U.S. Treasury yields could deter the central bank from raising interest rates further. Since March 2022, the Fed has raised its federal funds rate by 525 basis points to the current range of 5.25% to 5.50%.
The continued strong demand in the economy, marked by labor market tightness and driving inflation in core services (excluding rents), suggests that higher rates could continue for some time. In a separate report, the Labor Department said initial claims for state unemployment benefits were unchanged at a seasonally adjusted 209,000 in the week ended Oct. 7.
Portal graphics
There is no sign yet that the United Auto Workers (UAW) strike, now in its fourth week, will have a major impact on the labor market. The strike is creating supply chain shortages and forcing Ford Motor (FN), General Motors (GM.N) and Chrysler parent Stellantis (STLAM.MI) to furlough and lay off hundreds of workers.
The UAW labor dispute was cited by Fed policymakers as a new source of uncertainty about the economic outlook.
Minutes from the Fed’s Sept. 19-20 meeting released Wednesday revealed that “many participants observed that a tightening strike poses both an upside risk to inflation and a downside risk to activity.”
The number of people receiving benefits after an initial week of aid, an indicator of hiring, rose by 30,000 in the week ending Sept. 30 to a still-low 1.702 million, the claims report showed.
“While inflation is slowly falling, the strong labor market means the threat of a rebound in inflation cannot be ignored and is keeping the Fed on its toes,” said Seema Shah, chief global strategist at Principal Asset Management.
Reporting by Lucia Mutikani; Edited by Paul Simao
Our standards: The Trust Principles.
Acquire license rights, opens new tab