Key Takeaways:
Data: 3.7% YoY, 0.4% MoM
Forecasted: 3.6% YoY, 0.3% MoM
- Core CPI
Data: 4.1% YoY, 0.3% MoM
Forecasted: 4.1% YoY, 0.3% MoM
Inflation in the United States continued to hold its ground, though at a slightly more moderate pace than in previous months.
As reported by the Labor Department’s Consumer Price Index (CPI), consumer prices rose by 3.7% from a year earlier, a figure similar to August’s increase.
On a monthly basis, prices in September increased by 0.4%, following a more substantial 0.6% rise in August, primarily due to surging pump prices.
Read: US Inflation Climbs To 3.7% In August, Slightly Higher Than Expected
Core Inflation
A significant factor in this inflation report is core inflation, which excludes the often volatile food and energy prices.
Core prices rose by 0.3% last month, slightly slower than the 0.2% increases experienced over the summer.
This decrease contributed to the lowering of the annual core inflation rate to 4.1% from the 4.3% observed in August.
While core inflation remained high, this is the smallest gain recorded since September 2021.
Inflation Trends and Economic Impact
The trajectory of inflation is closely monitored for its potential economic implications. Annual inflation has decelerated significantly from its peak of 9.1% in June 2022, with a notable drop to 3% in the first half of 2023. This slowdown was attributed to the resolution of supply chain disruptions, particularly in goods such as used cars and furniture.
Despite this overall moderation, some factors have hindered the complete deceleration of inflation. The cost of services like rent, car repairs, and auto insurance continues to rise steadily. One of the contributing factors is the brisk increase in employee wages, which, while beneficial for workers, has kept the cost of services elevated.
Driving down inflation to the Federal Reserve’s annual target of 2% is becoming a tougher challenge. Projections from Barclays suggest that it may dip to 3.3% by December, but not until the close of 2024 is it expected to reach 2.6%. Similarly, core price gains are anticipated to drift down to 3.7% by the end of the year and 2.8% by the close of 2024.
Read: Federal Reserve Officials Agrees They Will Not Cut Rates In 2023 As Inflation Accelerates
Federal Reserve’s Role
The Federal Reserve has played a pivotal role in addressing the high inflation scenario. The central bank raised its key interest rate aggressively at ten consecutive meetings beginning in March 2022, marking the most vigorous series of rate hikes in four decades.
This streak of rate hikes was briefly paused in June, with the benchmark federal funds rate held steady. However, the Federal Reserve resumed its rate increases the following month, raising the rate by a quarter point to a range of 5.25% to 5.5%.
The federal funds rate is instrumental in influencing the cost of borrowing, affecting a wide range of financial products from credit cards to home equity lines. By raising this rate, the Federal Reserve aims to reduce borrowing, which can, in turn, help cool down an overheated economy and curtail inflation.
Read: Fed Raises Interest Rates By 25 BPS, Federal Funds Rate Is Now At 5.50%
Consumer Sentiments
Despite the moderation in price increases, many individuals and families continue to experience the financial challenges posed by high costs.
Rising expenses in essentials like gas and groceries have raised concerns among consumers, reflecting the ongoing impact of inflation on household budgets.
Final Thoughts
The Federal Reserve’s next meeting is scheduled for October 31 to November 1, where they will announce their interest rate decision.
While inflation has moderated somewhat in the previous month, it remains a significant concern for consumers and the broader economy. The Federal Reserve’s actions and economic factors will continue to shape the trajectory of inflation and impact the financial well-being of individuals and households across the United States.