The September Consumer Price Index (CPI) released by the Labor Department proved, once again, that the Federal Reserve Bank’s battle against inflation would be anything but smooth sailing. Prices for goods and services remained higher than expected, rising by 3.7% compared to the previous year, similar to last month’s increase. On a monthly basis, prices increased 0.4% following a 0.6% rise in August that was fueled by a sharp increase of 10% in gas prices compared to July, slightly more than the 0.3% pace economists expected.
The so-called core inflation, which excludes the more volatile prices of food and energy and is closely monitored by the Fed to judge the effectiveness of its interest rate hiking policy, rose 0.3% last month after 0.2% bumps over the summer. Despite this slight increase, it increased by 4.1% in annual comparisons, a step down from a 4.3% increase the previous month and reaching its slowest pace since September 2021.
Housing costs remain a sore point, making up more than half of the overall price increase in September with a 7.2% annual increase. However, economists are cautiously optimistic that rent inflation may be easing and could lead to a reversal. Like in August, September’s high gas prices made headlines but have since come down somewhat. Food price inflation is at its lowest rate since March 2021 at 3.7%, in pace with the overall inflation. In addition, prices for items such as used cars and furniture have dropped as pandemic-related supply-chain bottlenecks have been resolved. Nevertheless, the more restrictive supercore inflation gauge, which looks at services prices excluding shelter, showed a sharp increase in September, with a 0.61% monthly gain that was the biggest in a year. It increased 3.91% annually, a step down from 4% the previous month.
The Future Remains Uncertain
The September CPI report is the latest addition to a set of data that the Federal Reserve Bank will consider when deciding on its policy move at its next meeting, scheduled for October 31-November 1. However, it offers no clear insight as to what this move may be.
“Inflation is easing, it’s edging lower. However, food and energy prices remain elevated, and the average American lives in an environment in which food and energy are basics for their budget. And that budget is climbing higher,” said Quincy Krosby, Chief Global Strategist for LPL Financial.
Inflation has strongly decelerated from its 9.1% peak, a 40-year high, in June 2022. However, it is proving to be stickier than expected. The Fed opted to keep rates unchanged in September, maintaining its lending rate to a range of 5.25% to 5.5%, the highest since 2000.
We’ll see what the future will bring. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
