Even though rates went up, inflation went up 0.4% in September, which was more than expected. As inflation continued to weigh on the U.S. economy in September, prices for a wide range of goods and services went up more than expected.
According to the Bureau of Labor Statistics, the consumer price index went up 0.4% for the month. This was more than the 0.3% increase that Dow Jones thought would happen. So-called headline inflation was up 8.2% over the past year. This was down from its peak of around 9% in June, but it was still close to the highest levels since the early 1980s.
If you take out the volatile prices of food and energy, the core CPI was even higher for the month, rising 0.6% instead of 0.4% as predicted by Dow Jones. Core inflation was 6.6% higher than it was a year ago, which was the biggest increase in a year since August 1982.
At first, the report shook the financial markets, sending stock market futures down and Treasury yields up as traders priced in the fact that the Federal Reserve was likely to raise interest rates more quickly in the future. But those early losses were turned around in the morning, and by 1:30 p.m. ET, the Dow Jones Industrial Average was up more than 800 points.
Michelle Meyer, the chief U.S. economist at the Mastercard Economics Institute, said, “The Federal Reserve has made it clear that they are committed to price stability and reducing inflationary pressures.” “The more inflation is higher than expected, the more they’ll have to show that they’re serious, which means raising interest rates and slowing down the economy.”
The main number went up because food prices went up again by a large amount. The food index went up 0.8% in September, which was the same as in August, and it was 11.2% higher than it was a year ago.
This increase helped make up for a drop of 2.1% in energy prices, which included a drop of 4.9% in gasoline prices. AAA says that the price of regular gasoline at the pump is almost 20 cents higher than it was a month ago, which means that energy prices have gone up.
Shelter costs, which make up about a third of the CPI and are closely watched, went up 0.7% and are up 6.6% from a year ago. Transportation services also went up a lot, by 1.9% for the month and by 14.6% for the year. In September, costs for health care services went up by 1%.
Inflation-adjusted average hourly earnings fell 0.1% for the month and are down 3% from a year ago, according to a separate BLS report. This was more bad news for workers, whose average hourly earnings had already dropped 0.1% for the month.
Even though the Federal Reserve is working hard to stop price increases, inflation is still going up.
Since March, when they were first set, the benchmark interest rates have gone up by 3 full percentage points. When the Fed meets again on November 1 and 2, traders think there is a 98% chance that they will raise rates by 0.75 percentage points for the fourth time in a row.
Following the inflation data, futures prices show that there is a 62% chance of a fifth straight three-quarter point hike.
Even though there were drops in some key areas that policymakers are watching, inflation went up.
For example, the prices of used cars went down by 1.1% and the prices of clothes went down by 0.3%. Even though egg prices went down by 3.5% for the month, they are still 30.5% higher than they were a year ago.
But after going down for three straight months, airfares went up 0.8% this month and 42.9% from a year ago.
On Friday, the Commerce Department and the Census Bureau will release the September retail sales report. This will show how much the higher prices have hurt consumers. The data, which hasn’t been changed to account for inflation, is expected to show a 0.3% increase each month and no change when auto sales are taken out of the picture.
Meyer, an economist at Mastercard, said that consumer spending is still strong despite the pressures of inflation.
She said, “One reason inflation has been so high is that people have been able to buy a lot.” “Consumers are still spending even though inflation is going up, which makes it harder for the Fed to get the economy back in balance.”
Meyer said that falling home prices will eventually make their way into rents, which will bring down the overall inflation numbers.
Part of the reason why people haven’t cut back on spending is that they still have some stimulus money left over from Covid and the job market has been strong even though the economy has slowed down a lot. In September, the number of jobs outside of farms went up by 263,000, and the unemployment rate went down to 3.5%, which is tied for the lowest since late 1969.
The number of jobless claims for the week ending October 8 was 228,000, which was 9,000 more than the week before. This was reported by the Labor Department on Thursday. That was just a little over the estimate of 225,000, but it still shows that layoffs are low.