Inflation Rose More Than Expected in September, Complicating the Fed’s Path

October 19, 2023

Inflation rose at a higher-than-expected rate in September, offering the latest sign that the path to fully extinguishing price pressures remains choppy.

The good news is that inflation has slowed significantly from the 40-year highs reached last year, particularly when looking at the “core” inflation rate, which excludes volatile components like food and energy, but after a sharp slowdown in core inflation earlier in the summer, prices rose at a faster pace last month.

The consumer price index (CPI), a closely followed inflation gauge, increased 0.4% from the previous month and 3.7% from a year ago, according to the Labor Department. That is more than the median estimate of 0.3% that economists polled by The Wall Street Journal were looking for.

In keeping with recent trends, housing costs were the main driver of inflation. The index for shelter costs, which account for roughly one-third of the CPI weighting, accelerated 0.6% for the month and 7.2% from a year earlier. On a monthly basis, shelter costs accounted for more than half of the rise in CPI, the Labor Department said.

The strong CPI increase also meant that workers’ wages fell when adjusted for inflation. Wages were up just 0.2% for the month. That means that, when accounting for the month’s 0.4% inflation gain, real wages declined 0.2% for the month. On a yearly basis, wages were up 0.5%.

The subdued wage gains will be welcome news for the Federal Reserve, but the path of the central bank’s war against inflation is complicated by the latest data. Interest-rate futures still suggest that traders do not expect another interest rate increase this year, but the chances of at least one last hike rose to about 40% following the release of the CPI report, up from slightly less than 30% the day before.

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