US inflation heats up in September as pressures persist

The pace of US consumer price growth pushed higher in September, hovering at a 13-year high as inflationary pressures drove up the cost of food, energy and rent.

The consumer price index published by the Bureau of Labor Statistics on Wednesday rose 5.4 per cent in September from a year ago, slightly higher than the annual increase reported for August. Analysts had expected a 5.3 per cent increase.

On a monthly basis, prices climbed 0.4 per cent, up from the 0.3 per cent rise in the previous period.

Stripping out volatile items such as food and energy, “core” CPI ticked up 0.2 per cent from August. That compares to the previous month-on-month increase of 0.1 per cent, and maintains an annual pace of 4 per cent.

“Inflation is here and not going away in the coming months,” said Peter Tchir, global macro strategist at Academy Securities.

Food prices jumped a significant 0.9 per cent for the month, and shelter costs were also higher. Together those two categories accounted for more than half of the monthly increase in the headline figure.

The “food at home” index increased 1.2 per cent over the month as all six big grocery store food group indices rose, bringing the annual increase to 4.5 per cent. Dining out costs also rose, up 4.7 per cent for the year.

“Energy and food price inflation are the new fleeting supply shock epicentres,” said James Sweeney, chief economist at Credit Suisse. “These lift headline inflation numbers, feeding an anecdote to those that want to emphasise the current very high inflation numbers.”

He added: “longtime watchers of inflation data know, however, that energy price jumps can be reversed quickly and shouldn’t drive the conversation about the underlying inflation trend.”

Energy prices rose 1.3 per cent in September, and are up 24.8 per cent for the year.

Higher inflation has eroded consumers’ purchasing power. The Social Security Administration on Wednesday said that nearly 70m Americans will get a 5.9 per cent boost to their benefits in 2022, the biggest cost-of-living adjustment in four decades. The adjustment is tied to increases in a gauge of inflation for certain workers.

Economists and policymakers have debated at length the extent to which ongoing consumer price increases will shift to more persistent inflation that broadens out beyond sectors such as used cars and travel-related expenses. These sectors are most sensitive to pandemic-related disruptions and have so far driven the bulk of the increases.

Prices for used cars and trucks once again declined, falling another 0.7 per cent in September after a 1.5 per cent decline in the previous month. For the year, however, prices are still up 24.4 per cent. There was another steep drop in airline fares, decreasing 6.4 per cent over the month after falling 9.1 per cent in August. Apparel costs fell 1.1 per cent for the month, snapping a five-month streak of increases.

But September’s data showed pricing pressures beginning to broaden out elsewhere — a dynamic that Raphael Bostic, president of the Atlanta branch of the Federal Reserve, and other officials have noted.

Owner’s equivalent rent (OER) — a measure of what homeowners believe their properties would rent for — and rents posted their largest increases since 2000, up 0.4 per cent and 0.5 per cent respectively for the month.

Furniture and appliances got more expensive, with the household furnishing index rising 1 per cent in September. Supply chain bottlenecks also pushed up the price of new vehicles, which rose 1.3 per cent in September, after a 1.2 per cent rise the previous month.

“What this report drives home is that there is a singular component that is about to ride co-pilot with the supply chain issues, and that is owners equivalent rents,” said Tom Porcelli, chief US economist at RBC Capital Markets.

While Fed chair Jay Powell has said inflationary pressures will subside over time, he has acknowledged that the severity of the supply chain bottlenecks that have exacerbated ongoing price pressures caught the US central bank by surprise, and appeared to be getting worse.

His warnings were echoed by Gita Gopinath, chief economist at the IMF, who told the Financial Times this week that central banks needed to be “very, very vigilant” when it came to inflation risks.

The latest data came on the cusp of a policy pivot from the Fed, which is gearing up for a reduction, or “taper”, of its $120bn a month asset purchase programme.

Bostic told the FT on Tuesday that the process should begin next month and wrap up entirely by next year in order to give the Fed space to raise interest rates if necessary. Richard Clarida, Fed vice-chair, also signalled his support for that taper timeline at an event on Tuesday.

An increasing number of officials now see an adjustment as early as next year, with at least three rate increases pencilled in before the end of 2023.

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