United States Inflation Overshoots, Rises by 0.4% in Septemb

The United States’ Consumer Price Index (CPI) rose month-on-month at a higher-than-expected rate of 0.4% in September, outstripping August’s monthly increase of 0.1%, according to the latest data from the Bureau of Labor Statistics.


The latest US CPI data released today showed a higher-than-expected increase, but on an annualized basis fell by 0.1% down to 8.2%, the lowest 12-month inflation figure recorded since February, which suggests the inflation problem may be easing. However, the high month-on-month increase of 0.4% when only 0.2% had been expected was certainly taken as bad news by the market, suggesting that inflation is not under control and that the Fed will need to hike rates by even more than is already expected. The data sent the US Dollar and treasury yields soaring, with the 2-year treasury yield exceeding 4.50% at one point shortly after the data release.

The fall in the annualized CPI was widely anticipated, a survey of economists commissioned by the Dow Jones found that most expected an annual rate of 8.1%, compared to the 8.3% figure for August. At 8.2%, expectations were exceeded.

Energy Prices Fall 

Lower gasoline prices were a significant factor in the decline in the annualized CPI, as its index fell by 4.9% in September, following a 10.6% decrease in August.

Overall, the energy index was reduced by 2.1% in the latest figures, after falling more steeply in August by 5%.

However, the annualized energy index tells the full story, as it increased by 19.8% in September, alongside the gasoline index which has also risen by a huge 18.2%, with electricity also rising by 15.5% over the past 12 months. The rise in electricity prices is especially worrying.

Food Prices Spearhead CPI Increase 

Food prices were the main driving force behind the September CPI rise, as they rose by a considerable 0.8%, the same rate seen in August.

All the six main grocery store food group indexes climbed higher.

Fruits and vegetables rose by 1.6%, and the index for cereals and bakery products

grew by 0.9% over the month.

Prices for meat, poultry, fish, and eggs all rose at the same pace of 0.4%.

Over the past 12 months there have been more startling price rises, with cereals and bakery prices being hiked by a huge 16.2%, with dairy and related products rising by 15.9%.

In total, the food at home index has surged by a significant 13%.

Beverages also suffered price rises, with a 0.6% month-on month increase.

Eating out also has become more expensive, with a rise of 0.9% in September, which also matched in the previous month’s figures.

Limited and full services meals prices grew by 0.6% and 0.4% respectively.

Core inflation, or prices that exclude food and energy, has remained stubbornly high with an annualized rate of 6.6%, highlighting that the current price pressures are broad based, with the shelter and rent indexes currently rising rapidly.

Fed Will Continue to Attack Inflation 

The latest figures are likely to further encourage the hawkish attitude of the Federal Reserve, leading to continued interest rate hikes.

The minutes released from the FOMC’s meeting in September certainly suggest that the aggressive stance on inflation will be maintained, despite the admission that economic activity was slower in September compared to July.

“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes revealed.

Yet it was recognized at the meeting that the markets expect a smaller 0.50% rate rise in December compared to the recent 0.75% rises, which will continue with a peak rate being reached in the first half of 2023. However, that may change in the light of today’s inflation data.

It is also expected that the Ukraine situation will continue to create supply chain bottlenecks, and that wage increases could increase inflationary pressures.

Dollar Falls Against Pound, Stock Markets Also Fall 

The US Dollar rose firmly against most other major currencies as an immediate response to the inflation data, but notably fell against the British Pound which was strong over the day.

The inflation data was negative for stock markets, especially the US market. The benchmark S&P 500 Index continued its ongoing decline seen since the start of 2022, trading at a new 2.5-year low near 3500, while the Nasdaq also reacted negatively with a 2% slide.

These market movements clearly indicate that the latest US CPI data will probably push interest rates even high over all time frames, which is an important takeaway for traders.

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