WASHINGTON: US consumer prices rose more than expected in September and core inflation pressures continued to rise, bolstering expectations that the Federal Reserve will raise interest rates for a fourth time by 75 basis points next month.
The Labor Department said on Thursday that the consumer price index rose 0.4 percent last month after rising 0.1 percent in August.
In the 12 months to September, CPI rose 8.2 percent, following an 8.3 percent rise in August. Annual CPI rose to 9.1 percent in June, the biggest advance since November 1981.
Despite continued moderation as supply chain eases and oil prices pull back from highs seen in the spring, inflation is running above the Fed’s 2% target.
Gasoline prices are likely to have fallen after last week’s decision by the Organization of the Petroleum Exporting Countries and allies to cut oil production. Russia’s war against Ukraine is an upside risk to food prices.
Strong inflation and a tight labor market allow the US Federal Reserve to maintain its aggressive monetary policy stance for some time. The government last week reported solid employment growth in September, with the unemployment rate falling to a pre-pandemic low of 3.5 percent from 3.7 percent in August.
According to CME’s FedWatch tool, financial markets have priced in a rate hike of about three-quarters of a percentage point at the Fed’s Nov. 1-2 policy meeting.
The Fed has raised its policy rate since March from near zero to the current 3.00% to 3.25%. Minutes of the Fed’s Sept. 20-21 meeting, published Wednesday, indicated policymakers “expect inflationary pressures to persist over the forecast period.”
Excluding volatile food and energy components, the CPI rose 0.6 percent in September after rising 0.6 percent in August. The so-called core CPI rose 6.6 percent in the 12 months to September. Core CPI rose 6.3 percent year-on-year in August.
Core inflation is largely driven by higher costs for rental housing. Government data on Wednesday showed the weakest reading of producer prices in nearly 2-1/2 years in September. However, it may take some time for producer-to-consumer inflation to pass through.
Some of the inflationary pressures are coming from a tight labor market. A second report from the Labor Department on Thursday showed that the number of Americans filing new claims for unemployment benefits increased slightly last week. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 228,000 for the week ended Oct. 8.
Economists had forecast 225,000 applications for the latest week. The labor market remains tight. On the last day of August, there were 1.7 job openings for every unemployed person, and layoffs are even lower.
Minutes from the Fed’s September meeting also showed policymakers that “the imbalance between supply and demand in the labor market will gradually ease,” and that “the transition to a softer labor market will lead to an increase in the unemployment rate.” Will be with you.”
