U.S. inflation rises 0.4% in September despite Fed rate hikes

Despite the Federal Reserve’s interest rate hikes, inflation reportedly rose 0.4% in September in the U.S., higher than expected. Data from the Bureau of Labor Statistics also showed that consumer prices rose 8.2 percent from a year earlier.

The Consumer Price Index rose 0.4 percent over the month, beating the Dow Jones estimate of 0.3 percent for the same period. In addition, excluding volatile food and energy prices, the core consumer price index accelerated by 0.6 percent. This increase was above the Dow Jones estimate of 0.4 percent. In addition, core inflation also rose 6.6 percent from a year earlier. This is the largest 12-month gain since August 1982.

In September, headline inflation rose 8.2 percent. This is a move away from the June peak of 9 percent, but still approaches high levels not seen since the early 1980s.

Markets are now looking ahead to the months ahead. According to analysts and market watchers, the Federal Reserve may build on the September inflation report. This could result in subsequent rate hikes of 0.75 percentage points for November and December.

September inflation report provides food for thought

The lackluster inflation report and the prospect of more aggressive rate hikes initially rattled financial markets. For example, the value of stock market futures fell, while Treasury yields rose inversely. Despite these developments, most of the earlier losses were reversed during the morning session. During the same period, the Dow Jones closed up over 800 points after a monumental one-day reversal.

Michelle Meyer, chief U.S. economist at Mastercard Economics Institute, commented on the September inflation report forecast and the Fed’s likely response:

“The Federal Reserve has made clear that it is committed to price stability and reducing inflationary pressures. The higher inflation is than expected, the more it will have to prove its commitment, which means higher interest rates and a cooling of the underlying economy.”

Amid rising costs for food (0.8 percent), housing (0.7 percent), transportation services (1.9 percent), and medical care services (1 percent) in September, workers’ wages fell again. According to reports, average hourly earnings fell by 0.1 percent per month and 3 percent over a year, when adjusted for inflation. However, despite these inflationary headwinds, Michelle Meyer notes that consumer spending remains strong. As she puts it:

“Part of the reason that inflation is so strong is that consumers have had very strong purchasing power. Consumers continue to spend despite these inflation increases, and so the challenge is greater for the Fed to be able to effectively rebalance the economy.”

Incoming Sales Report

The Federal Reserve has raised benchmark rates by a full 3 percentage points since March. However, the extent to which this increase and rising prices have hurt consumption may become clearer on Friday. Indeed, the market is expecting the Commerce Department and Census Bureau to release the retail sales report for September on Friday. The non-inflation-adjusted data is expected to show a monthly increase of 0.3% and no change if auto sales are excluded.