Headline inflation came in hot in September, the Consumer Price Index (CPI) revealed Thurday.
Consumer prices rose 0.4% last month – down from a 0.6% increase in August – the Bureau of Labor Statistics reported Thursday. Economists were looking for headline inflation to increase 0.3% in September. So-called core CPI, which excludes volatile food and energy prices and is considered to be a better indicator of future inflation, rose 0.3% last month, which was in line with forecasts.
Although the latest inflation data shouldn't deter the central bank from leaving interest rates unchanged at the next Fed meeting, it does open the door to another rate hike before the end of the year, experts say.
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"Headline CPI report this morning came in slightly ahead of estimated, mainly due to rising energy costs with also a small increase in food prices, as well," writes Stephen Kolano, managing director of investments at Integrated Partners. "Inflation continues to be stubborn but does not appear to be reaccelerating."
While the September inflation data could be a bit prettier, there is no question that the worst bout of inflation to hit consumers since the late Carter and early Reagan administrations peaked more than a year ago.
Which brings us to the less-good news about inflation. Prices are still rising at rates not seen in generations.
Between 2000 and 2020, annual inflation in the U.S. averaged just 2.1%. (Recall that the Federal Reserve's inflation target is 2%.) Perhaps we didn't appreciate it enough at the time, but the first two decades of the 21st century were a sort of goldilocks era for inflation: not too fast and not too slow.
Just have a look at some of the subcategories in the latest the CPI report to see how much things have changed. Below we highlight the goods and services that are weighing most heavily on folks' finances.
Rising prices: where inflation is hitting hardest
As noted above, energy prices were a major driver of September inflation. All energy prices rose 1.5% last month, driven by a 2.1% rise in the gasoline index and an increase of 8.5% for fuel oil.
Another contributor to inflation in September was in housing. No surprise there. The shelter component, which counts sundry costs for keeping a roof over one's head, rose 0.6% last month and 7.2% year-over-year.
True, home prices and rents have been in a downtrend since June 2022, but higher owners' equivalent rent and the fact that the data are backward looking are just a couple of reasons for this CPI component remaining elevated.
Then there's food, prices of which rose 0.2% in September, or the same rate of inflation as seen the prior two months. On an annual basis, food inflation rose 3.7% in September, driven by a 6.0% increase in food away from home and a 2.4% rise in prices for food at home.
Dilling down a bit, the index for cereals and bakery products rose 4.8% over the 12 months ending in September, the BLS said. Happily, the dairy and related products index decreased 0.2% year-over-year.
Transportation services also took a bite out of consumers' budgets, as prices rose 0.7% in September and 9.1% over the past 12 months.
In better news, prices for used cars and trucks fell 2.5% in September and are now down 8.0% over the past 12 months. Less helpfully, prices for new vehicles rose 0.3% in September after rising the same amount in August. On an annual basis, new vehicles were 2.5% pricier last month.
The bottom line is that on an annual basis, inflation was primarily driven by higher costs for energy, shelter and food. Happily, those upward pressures continue to show signs of easing.
"Higher than expected headline inflation will continue to keep the Federal Reserve in a defensive position even as core CPI continued to disinflate on a year-over-year basis," writes Eugenio Alemán, chief economist at Raymond James. "However, the acceleration in shelter costs in September is slowing down the disinflationary process and supports the Fed’s 'higher for longer' message."
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