The report showed that inflation continued to cool down in September, reaching the lowest level for three years.
The Labor Department announced on Thursday that the Consumer Price Index (CPI), a measure of the cost of everyday items like groceries, gasoline, and rent, rose by 0.2% from the previous month. It was also up 2.4% compared to a year earlier.
According to economists surveyed, LSEG predicted that the inflation rate would drop to 2.3% annually and rise by 0.1% compared to last month.
Core prices, which exclude volatile measures of gasoline and food to better assess trends of price growth, rose 0.3% monthly and 3.3% year-over-year – slightly more than the economists’ expectation of 0.2% and 3,2% respectively.
The report shows that the inflationary pressures are continuing to decrease in the U.S., even though prices remain higher than the Federal Reserve’s target of 2%.
The high inflation rate has put a strain on most American households. They are now forced to pay higher prices for necessities such as food and rent. Prices are especially high for low-income Americans because they spend more on essentials and have less money to save.
Shelter prices rose 0.2% in September compared to August. Shelter prices have increased by 4.9% in the past year and account for more than 65% of all 12-month increases in the core index, which excludes food and fuel.
The price of motor vehicle insurance has increased by 16.3%, medical care is up 3.3%, personal care is up 2.5% and apparel is up 1.8%.
The price of airline tickets rose by 3.2% in comparison to August. This was a slight decrease from the 3.9% rise a month earlier, bringing the annual increase to 1.6%.
Food prices also increased for consumers, increasing 0.4% monthly and 2.3% compared to a year earlier. Food prices at home also increased by 0.4% in comparison to a month earlier, but the annual increase was significantly smaller at just 1.3%. Prices of food purchased away from home rose 0.3% monthly and 3.9% compared to a year earlier.
Prices for beef and veal are up 4.2% compared to a year earlier. Other types of meat, such as pork (+1.5%), and poultry (+0.5%), have experienced smaller price increases. Ham prices fell 2.5% compared to a year earlier, while prices for fish and seafood were down by 1.3%. The price of eggs is up 39.6% annually after rising 8.4% from August to September.
In September, energy prices fell 1.9% compared to August and 6.8% from a year earlier.
The Federal Reserve is reducing interest rates to reduce borrowing costs, as inflation falls toward the 2% target. In September, the central bank lowered rates by 50 basis point. The benchmark federal funds rate was lowered from a range between 5.25% and 5.5% to 4.75% or 5%.
The Federal Reserve will not be deterred from cutting rates by 25bps in November because the consumer price index for September was higher than expected. The Fed must continue to normalize rates to keep the economy moving towards a “soft landing”.
The markets are increasingly predicting that the Fed will reduce rates by 25 basis points, rather than the larger 50 basis-point cut. According to CME FedWatch, interest rate traders expect a 25 basis-point cut in rates next month. The tool also predicts a 13% chance that the Fed will hold rates at the same level. The CME FedWatch tool shows that a week ago the markets predicted a 32% probability of a 25 basis point cut and no chance for the Fed to hold rates steady. This was due to the recent jobs report and inflation data.
“One slightly higher-than-expected CPI doesn’t necessarily mean that a new wave has begun, but its occurrence in conjunction with a rise in weekly unemployment claims could add to the short-term uncertainty,” said Chris Larkin. He is managing director for trading and investment at E*Trade, a Morgan Stanley company. We’re in an environment where “good news means good and bad news means bad,” and while these numbers weren’t great, they didn’t change the outlook for moderate inflation and solid economic growth.
The Fed will hold its next policy meeting on Nov. 6-7 on the heels of Election Day, which is Nov. 5.
