September CPI rose 0.4 percent despite Fed rate hike

Inflation accelerated in September from the previous month, rising 0.4 percent, despite policy makers’ work to bring down higher prices that affected US families and businesses.

Financial markets were pulled back by the news, as investors feared that the report would secure tighter interest rates from Federal policy makers. The Dow Jones Industrial Average was down about 450 at the open, or 1.5 percent. The Nasdaq is down about 3 percent, and the Standard & Poor’s is down about 2 percent.

September prices are up 8.2 percent from a year ago, according to data released Thursday by the Bureau of Labor Statistics, slowing slightly from the peak of summer but still at levels not seen in four decades.

Core inflation, a closely watched measure that excludes more volatile categories such as food and energy, also came in hot, rising 0.6 percent on the month, matching a similar pace in August. This is a particularly worrying sign that inflation is becoming more entrenched in the economy – and it will be very difficult to eradicate.

The latest inflation report was driven by increased costs for shelter, medical care, health insurance, new cars, home furnishing and education. All high prices in these categories persisted for months, only offset by a 4.9 percent decline in the gasoline benchmark, as prices continued to fall from their summer peak.

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Rent remains one of the most important segments of the inflation report, known as the Consumer Price Index. Rental costs rose 0.8 percent in September, up slightly from the previous two months. It also rose 7.2 percent last year, marking the largest increase since 1982.

The Fed’s interest rate hike immediately affected other parts of the housing market by increasing mortgage costs and helping cool home prices. But economists predict that it will take months for rental costs to be reversed, leaving many Americans stretching their budgets just to stay home, or move elsewhere at affordable rates.

The food index rose 0.8 percent in September, as it did in August. The prices of fruits and vegetables rose 1.6 percent, and cereals and bakeries 0.9 percent. Flour, turkey and butter have reached new highs. Finally, food costs are up 11.2 percent over the past year.

Few indicators fell in September. Used cars and trucks fell 1.1 percent, not as much as analysts had expected. Clothing decreased 0.3 percent.

Inflation remains the economy’s biggest problem, and a challenge for Democrats in the White House and Congress in next month’s midterm elections. For over a year, families have swallowed the rising costs of groceries, gas, rent, and just about everything. Companies are struggling to make up for rising transportation costs, Finding enough workers Or getting around ongoing supply chain issues. Also on Thursday Social Security Administration announce An 8.7 percent increase in benefits checks for seniors starting next year, in response to the fastest inflation America has seen in four decades.

As the Fed fights inflation, fears are growing that it’s overcorrect

Today’s bleak reality looms a more uncertain future, as no one knows whether the Fed’s efforts to cool prices, and the broader economy through higher interest rates, will spur a recession. Even President Biden took the extraordinary step this week of recognizing the possibility of a recession. I don’t think there will be a recession. “If that’s the case, it’s going to be a very slight recession,” Biden said in an interview with CNN that aired on Tuesday.

Federal Reserve officials have clarified those rates very high That the Fed is far from winding down its aggressive campaign to raise interest rates, even as experts increasingly warn that the Fed is taking a risk overcorrection Economy. Currently, the Fed’s policy rate, known as the federal funds rate, is between 3 and 3.25 percent.

“Read and weep,” said Joe Brusolas, chief economist at RSM. “Talk about the Fed introducing the hard line. They may need to step up that hard rhetoric and follow through until at least 5 percent of the policy rate.”

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“From the Fed’s point of view, you want to see a trend. Number one is not going to give you direction,” said Roberto Burley, head of global policy research at Piper Sandler and former Fed economist. “The past several months have been pretty high. I don’t think their views will change much.”

To tackle inflation, the Fed raises interest rates, which can Eliminate demand in the economy by making the whole range of lending – from car loans to mortgages – more expensive. The Fed has raised interest rates five times this year, most recently by three-quarters of a percentage point in September. Two more big increases are expected in November and December, and the latest inflation report has boosted analyst expectations for a fourth hike by three-quarters of a percentage point next month.

Uncertainty about the economy It spread to financial markets, stifled by recession fears in the United States and abroad. All major indices slipped on the Fed’s clear warnings that it will not back down as interest rates rise, and inflation data released on Thursday could send stocks down even more. Fed officials say volatility in the markets doesn’t Influence their price hike plans. But falling stocks could become a problem in next month’s midterm elections and shape people’s feelings about the strength of the economy.

The Job Market Is Slowing Down, And This Might Be Just The Beginning

At the same time, some parts of the economy have remained resilient through high inflation and sharp hikes in interest rates. Labor market Cooling in certain areas But it maintained the momentum overall, with employers adding a strong 263,000 jobs in September. Consumer spending and personal income rose in August. Consumer confidence bounced back from summer lows, when gas prices topped $5 gallons.

At the Los Angeles Regional Food Bank, food costs are up about 20 percent, with staples like chicken, turkey, beans and rice taking a larger share of the organization’s budget. Fuel costs are up 50 percent and remain a major operating expense even with lower gas prices.

CEO Michael Flood said the food bank reached 800,000 people in September, a level roughly in line with the rest of the year. Flood said he routinely hears from families who can barely collect a rent check, pay for medicine or fill up a gas tank, and have no choice but to give up food.

“We thought 2022 would be a somewhat quieter year, with the employment situation much better than in 2020 and 2021,” Flood said. “But really, it’s inflation that has kept this demand for food assistance at such a really high level.”

After miscalculation Inflation for most of the past year, some experts fear the Fed’s plan to rein it in again could be counterproductive. Prices are raised late, it takes months before their full weight affected the economy. Also, policy makers can only address consumer demand problems. Their tools don’t help fix supply-side issues, such as chip shortages and housing shortages, that have driven up the costs of used cars or new homes.

Why does the Federal Reserve raise interest rates?

So far, Fed officials say there is a higher risk of not doing enough to fight inflation. But they also acknowledge that their tools are imprecise and blunt, and that any new global shocks make recessions more difficult to avoid.

“The Federal Reserve is taking into account the spillover effects of higher interest rates, a stronger dollar, and weaker demand from foreign economies to the United States, as well as in the opposite direction,” said Fed Vice Chairman Lyle Brainard. He said In a speech on Tuesday. “We are alert to the risk of further adverse shocks – for example, from Russia’s war against Ukraine, the epidemic or China’s epidemic-free policies.”

For the Fed and global central banks, the main winds are increasing every week. International Monetary Fund on Tuesday lowered Its outlook for global growth, saying in a new report that “the worst is yet to come, and for many people 2023 will feel stagnant.” Russia’s invasion of Ukraine also continues to roil the global economy, as a coalition of oil-producing nations led by Russia and Saudi Arabia has announced last week They will reduce oil production, a move that could be very soon Gradually send a reserve for gas prices. Wholesale prices also rose more than expected in September, according to federal data released on Wednesday.

In Richmond, brunch business is still hopping on at LuLu’s. But the cost of customer service shrinks every margin. Payroll costs are 20 to 30 percent higher than they were before the pandemic. It is difficult to hire enough skilled kitchen workers. Owner Paul Keevel said he knew he would have to pay a few dollars more to cook inexperienced food per hour than he would have paid veterans just a few years ago.

Keville and general manager Aaron Clifton said there is a limit to how much prices can be raised at the cozy café. And there’s a limit to how much to plan ahead, because component prices fluctuate wildly.

The cost of eggs goes up by 400%. “If you were to charge up an omelet and charge $25, you would be out of work,” Clifton said. “No one will buy it.”

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