Worsening inflation will push the Fed to keep raising rates | Company

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WASHINGTON (AP) — U.S. inflation accelerated in September, with the cost of housing and other necessities mounting pressure on households, wiping out wage gains and ensuring the Federal Reserve will continue to aggressively raise wages. interest rate.

Consumer prices rose 8.2% in September from a year earlier, the government announced on Thursday. Month over month, prices rose 0.4% from August to September after rising 0.1% from July to August.

Excluding the volatile food and energy categories, so-called core inflation soared well above expectations last month – a sign that the Fed’s five rate hikes this year have failed. so far not done much to ease inflationary pressures. Core inflation rose 0.6% from August to September and 6.6% over the past 12 months. The annual base figure is the largest increase in 40 years. Basic prices generally provide a clearer picture of underlying price trends.

Major US markets fell sharply, with the Dow Jones Industrial Average falling 400 points, or 1.4%, in early trading. European markets also fell.

Thursday’s report represents the final U.S. inflation numbers ahead of the Nov. 8 midterm elections after a campaign season in which soaring prices stoked public anxiety, with many Republicans blaming it. on President Joe Biden and congressional Democrats.

Higher prices for many services – health care, auto repair and housing, among others – fueled inflation last month. A measure of housing costs jumped 0.8% in September, the biggest increase in 32 years. The Fed’s rate hikes pushed mortgage rates up sharply and caused house prices to plummet. But falling house prices will take time to trickle down to government action.

“The main driver of inflation has shifted away from the prices of goods and services,” said Eric Winograd, US economist at AB. “Services inflation is heavily influenced by wages, so it will take a significant weakening in the labor market to bring inflation under control.”

The cost of health insurance jumped 2.1% from August to September and more than 28% in the past 12 months, a record year-on-year increase. Auto repair costs jumped 15% in September from a year earlier, also a record high.

Inflation in services is fueled primarily by steady consumer demand and higher labor costs. Delta and American Airlines, for example, saw strong revenue and profit growth this week, driven by increased demand from travelers. Air fares rose 0.8% from August to September.

A range of service industries, including airlines, hospitals and even veterinary services, need to rapidly raise wages to attract the workers they need. These higher labor costs, in turn, are often passed on to consumers in the form of higher prices.

Inflation has inflated families’ grocery bills, rents and utility costs, among other expenses, causing hardship for many and deepening pessimism about the economy despite strong growth in employment and historically low unemployment.

Kasondra Mathews is among those feeling the pressure. Mathews, 50, who lives near Denver, worked overtime as a nursing assistant to meet her rent and grocery bills. His rent has increased by about 5% per year for the past few years, which has reduced his budget for other items.

With her daughter graduating from high school and college soon, Mathews found ways for her to apply to her favorite schools for free. She also forgoes any college visits to avoid travel expenses.

“We haven’t been able to do college tours, because we can’t afford it,” she said. “I couldn’t do the things you would want to do for your eldest.”

Across the economy, prices are accelerating even as some of the supply chain issues plaguing many manufacturers ease. Prices for basic goods, which drove up inflation last year, remained unchanged last month.

As the election approaches, Americans are increasingly taking a dim view of their finances, according to a new survey from the Associated Press-NORC Center for Public Affairs Research. Around 46% of people now describe their personal financial situation as poor, up from 37% in March. This significant drop contrasts with the mostly flat readings that have endured through the pandemic.

The September inflation numbers are unlikely to alter the Fed’s plans to maintain an aggressive rate hike in an effort to keep inflation under control. The Fed has raised its short-term policy rate by 3 percentage points since March, the fastest rate of increase since the early 1980s. The increases are aimed at raising borrowing costs for mortgages, auto loans and business loans and curbing inflation by slowing the economy.

Minutes from the Fed’s last meeting in late September showed that many policymakers have yet to see any progress in their fight against inflation. Officials have forecast that they will raise their benchmark rate by another 1.25 percentage points during their next two meetings in November and December. This would put the Fed’s key rate at its highest level in 14 years.

Along with lower gasoline prices, economists expect used car prices to reduce or at least limit inflation in the coming months. Wholesale used car prices have fallen for most of this year, although the declines have yet to show up in consumer inflation data. (Used vehicle prices had skyrocketed in 2021 after factory closures and supply chain shortages reduced production.)

Major retailers have also started offering early discounts for the holiday shopping season, after racking up excess inventory of clothing, furniture and other goods earlier this year. These price cuts may have lowered inflation in September or will do so in the months to come.

Walmart said it would offer deep discounts on items including toys, homewares, electronics and beauty. Target began rolling out vacation deals earlier this month.

Yet service prices – especially rents and housing costs – remain consistently high and will likely take much longer to come down. Health care services, education, and even veterinary services continue to rise rapidly in price.

“Service price increases tend to be more persistent than goods price increases,” Federal Reserve Bank of Atlanta president Raphael Bostic noted in remarks last week.

Rising rents are a tricky issue for the Fed. Real-time data from websites such as ApartmentList suggests rents for new leases are starting to drop.

But the government measure tracks all rent payments – not just those on new leases – and most of them do not change from month to month. Economists say it could be a year or more before the drop in new leases trickles down to government data.

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