Inflation continued to edge down last month, but the pace of retreat from record highs remained very slow, with a key measure hitting a new 40-year record.
Consumer prices rose 8.2% from a year earlier, according to the Labor Department’s CPI, down from a four-year high of 8.3% in August and 9.1% in June, as higher food and rental costs again offset lower gasoline prices . Growth last month beat forecasts for a more rapid slowdown in inflation.
On a monthly basis, consumer prices edged up 0.4% after rising 0.1% in August, beating expectations. While headline inflation is gradually slowing, a key measure of underlying price gains hit a new all-time high last month.
What is core CPI?
Core prices, which exclude volatile food and energy items, which are usually a better gauge of longer-term trends, were up 0.6% from August after a similar rise last month. That pushed annual growth from 6.3% to 6.6%, a 40-year high.
The report highlights how entrenched inflation has become in the U.S. economy despite the Federal Reserve’s efforts to tame inflation by raising interest rates sharply. While price gains are slowing, its broad impact ensures that the pullback will be gradual. Overall, price increases for goods such as used cars and clothing are slowing, in part because supply chain issues are easing, but the cost of services, including rent and medical care, has been soaring.
Economists said the report did little to dissuade the Fed from approving a fourth straight rate hike early next month to keep inflation in check.
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Buy in bulk to save money
Amber Flack, 45, from Pickerington, Ohio, has noticed a drop in gas prices, but it hasn’t brought her back to her pre-pandemic spending habits as her grocery bills have been climbing.
She and her family spend as much as $1,000 a month on groceries, up from $600 before prices soared. They are now saving more than $100 a month by buying items like canned vegetables, sodas and paper towels in bulk.
“I don’t like buying in bulk to get a fair price, but that’s what I do now,” she said.
They also drive less to save on gas, live within five miles of home, and haven’t taken a vacation since before the COVID-19 health crisis. Previously, they had at least two big vacations a year.
10-Year Treasury Yields Soar, Stocks Fall
Bond prices fell in response to the government’s inflation report, with the U.S. 10-year Treasury yield rising above 4 percent, while the 2-year yield rose to nearly 4.5 percent.
The Dow opened about 500 points lower and stocks tumbled as investors digested the possibility of further aggressive Fed moves. It has since regained some lost ground, down 239 points or 0.8% as of 9:55 a.m. ET
Why are gasoline prices recovering?
Natural gas prices fell sharply for the third straight month on falling global oil demand and recession fears. Oil prices fell 4.9% but were still up 18.2% on a yearly basis and have risen in recent weeks after OPEC announced production cuts.
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Will food prices continue to rise?
Grocery prices rose 0.7% from August and were up 13% over the past 12 months. Prices of commodities such as wheat and corn have fallen broadly in recent months but have remained volatile, in part because Russia’s war with Ukraine has disrupted a region that exports a significant share of those crops. Barclays expects annual food inflation to hit double digits through January.
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In September, rice prices rose 1% month-on-month and 13.6% year-on-year. Cakes, cupcakes and biscuits rose 1.8% and are up 16% on a yearly basis. Pork increased by 1.8% and 6.7% year-on-year.
Some food costs fell. Raw ground beef fell 2% and eggs fell 3.5%, but still rose 30.5% annually.
Other price movements were mixed. Rents rose 0.8 per cent and 7.2 per cent per month over the past year as landlords responded to earlier house price increases.
After two months of declines, airfares have resumed their upward trend, rising 0.8% and 42.9%, respectively, over the past year. Healthcare services grew at an average annual rate of 0.7% and 6.5%. New car costs rose 0.7% and 9.4% annually.
Even more encouraging was the continued decline in used car prices – down another 1.1% – following a historic rise as the tight supply of new cars eased. Clothing prices fell 0.3% and hotel prices fell 1%.
But the persistence of inflation has caused many Americans to significantly change their behavior.
Michael Rossini, 57, of Randolph, Mass., spends about $55 a week on groceries. It now costs $170 to fill up his pickup truck, up from $100 before inflation spiked, even after the summer oil price drop.
He and his two teenage daughters stopped dining out and canceled their annual three-week trip to Italy and monthly shopping mall trips. He has also become an avid do-it-yourselfer, changing the oil in his truck and buying a $600 tractor so he can do his own landscaping.
While he can maintain his former lifestyle on an engineer’s salary, he worries about setting aside enough money for his daughter’s college expenses and his own retirement.
“I have to support my family,” he said. But, he added, “My quality of life has gone down…I can’t go back.”
There are signs that inflation will moderate significantly in the coming months. According to Goldman Sachs and Pantheon Macroeconomics, rents for new leases are falling, while a surge in health insurance premiums should partially reverse from October.
But economists say the pullback is likely to continue slowly
How many rate hikes are expected in 2022?
Meanwhile, Ian, chief economist at Pantheon, said the disappointing report all but cemented the Fed’s fourth straight rate hike in early November and raised the risk of a similar rate hike in December, rather than an initial rate hike by Fed officials. Plan to raise interest rates by half a percentage point. shepherd.
Inflation affects Social Security COLA increase
High inflation is having a positive effect. The government also announced Thursday that Social Security benefits will rise 8.7% next year as costs rise — the fourth-largest increase since automatic inflation adjustments were introduced in 1975.
Contributor: Elisabeth Buchwald