The latest Consumer Price Index (CPI) report indicates that inflation increased by 0.4% in the past month and 8.2% in the past year, according to the U.S. Bureau of Labor Statistics. It marks a slight annual deceleration from 8.5% in July and 9.1% in June.
Increases in the shelter, food, and medical care indexes were the largest of many contributors, increasing respectively by 0.7%, 0.8%, and 1.0% in the past month. The energy index fell 2.1% in September as the gasoline index declined by 4.9% while natural gas and electricity prices kept climbing.
The Core CPI, which excludes the more volatile prices of food and energy, increased 6.6% from a year ago, the highest level since 1982, marking a 0.6% hike from the month prior. In light of these data, the likelihood that the Federal Reserve will proceed to a fourth consecutive 75 bps interest rate hike at its next meeting in November has increased accordingly.
A Global Issue
The Federal Reserve’s decision is likely to have a long-reaching impact on the economy worldwide. “Central banks around the world are now laser-focused on restoring price stability, and the pace of tightening has accelerated sharply,” says Pierre-Olivier Gourinchas, chief economist for the International Monetary Fund (IMF). “There are risks of both under- and over-tightening.”
The economies of the United States, China, and the 19 nations of the Eurozone, which constitute the leading actors on the global stage, are in various stages of turmoil, and the IMF warned that “The worst is yet to come, and for many people 2023 will feel like a recession.” The United States is struggling to slow inflation, China must contend with repeated lockdowns affecting the supply chain, and Europe is dealing with the repercussions of the ongoing Ukrainian war, particularly on the price of energy at the approach of winter, a deadly combination for global growth. The IMF revised its expectation of global growth down to 2.7% for 2023.
Although the Fed’s hawkish policy could contribute to slowing down inflation domestically, events around the globe will inevitably affect our economy as well. We shall see.
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