US Consumer Prices rise 3.7% in September, impacting Federal Reserve’s rate-hike decision

  • US consumer prices rose by 3.7% in September, surpassing economists’ expectations and remaining above the Federal Reserve’s target.
  • Housing and gasoline prices were major contributors to the price increase, while core inflation matched the previous month’s rate.
  • Despite strong job growth, the Fed is still facing challenges in balancing inflation control and economic growth, with recent wage growth moderating but inflation still above target.

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Consumer prices in the US rose by 3.7% in September compared to the same month last year, which was in line with the previous month’s increase and exceeded economists’ expectations. Although inflation has dropped from its peak of 9% last summer, the current price growth is still more than a percentage point above the Federal Reserve’s target. With the Fed about to make its rate-hike decision in three weeks, this data could have an impact on their decision. Last month, the Fed decided to keep interest rates unchanged and indicated that it anticipates one more rate hike this year.

The largest contributors to price movements last month were increases in housing and gasoline prices, as indicated by government data. Additionally, core inflation, which excludes volatile food and energy prices, also rose by 4.1% in September compared to the previous year, matching the rate of the previous month. Although this annual inflation rate is higher than expected, there is some positive news regarding the monthly inflation rate. Consumer prices increased by 0.4% in September compared to the previous month, which is a significant slowdown compared to August’s inflation rate.

The Federal Reserve has been facing challenges in balancing inflation control with economic growth. The recent mixed signals from the economy have complicated their efforts to achieve a “soft landing” – reducing inflation without plunging the country into a recession. The rapid rise in US government bond yields over the past few weeks has also resulted in increased borrowing costs for consumers and businesses. This could potentially slow down economic activity in the upcoming months.

However, there was positive news from a strong jobs report released on Friday. Employers added 336,000 jobs in September, surpassing economists’ expectations and reversing a slowdown in hiring that had persisted for several months. The unemployment rate remained steady at a historically low figure of 3.8%. Despite the aggressive interest rate hikes in the past year, businesses seem willing to continue hiring.

While the robust hiring may raise concerns among central bankers, the moderation in wage growth shown in the hiring data could alleviate fears of inflationary pressures due to rising worker pay. Wages increased by 4.2% on an annual basis in September, surpassing the inflation rate but falling below the pace set in March. Although progress has been made, the Federal Reserve is still far from reaching its target inflation rate, according to a statement by Fed Chair Jerome Powell last month. Powell acknowledged that there is still a long way to go in achieving sustainable inflation and emphasized the need for careful assessment of data and the evolving economic outlook and risks.

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