Consumer prices held steady in September after rebounding higher over the last three months, evidence that the Federal Reserve’s fight against inflation is still far from over.
The U.S. Consumer Price Index (CPI) measures the price fluctuations of a broad basket of goods and services paid by consumers in the United States. The CPI rose by a seasonally adjusted 0.4% in September and 3.7% before seasonal adjustment over the last 12 months, per U.S. Department of Labor data released on October 12. Both figures were in line with economist expectations for the month.
The index for all urban consumers, which excludes the volatile food and energy components of inflation, rose 0.3% in September, marking the same seasonally adjusted increase as in August, the Bureau of Labor Statistics reported.
Overall, core inflation has seen a slow but steady downtrend over the last 12 months, moderating to 4.1% year-over-year in September, down from 4.3% in August and 4.7% in July.
The seasonally adjusted indexes with notable increases in September include rent (+0.5%), owners’ equivalent rent (+0.6%), lodging away from home (+3.7%), motor vehicle insurance (+1.3%), new vehicles (+0.3%), medical care (+0.3%), and hospital services (+1.5%).
The food index rose 0.2% in September, as it did in the previous two months. Meanwhile, the index for food at home increased 0.1% over the month while the index for food away from home rose 0.4%, meaning consumers continue to pay higher prices at grocery stores and restaurants.
The indexes for used cars and trucks (-2.5%) and apparel (-0.8%) were among those that decreased during the month.
“Inflation is easing, it’s edging lower. However, food and energy prices remain elevated, and the average American lives in an environment in which food and energy are basics for their budget. And that budget is climbing higher,” said Quincy Krosby, chief global strategist for LPL Financial, per NBC News.
Overall, shelter costs were the most significant contributor to inflation in September and over the past 12 months, accounting for more than half of the rise in CPI. Indexes with notable increases over the last 12 months include shelter (+7.2%), motor vehicle insurance (+18.9%), recreation (+3.9%), personal care (+6.1%), and new vehicles (+2.5%).
Despite the headline and core inflation readings coming in slightly higher than expected in September, the Fed’s outlook for monetary policy is likely to remain unchanged, according to Augustine “Gus” Faucher, the senior vice president and chief economist of The PNC Financial Services Group.
“PNC expects the Federal Open Market Committee to keep the fed funds rate, its key short-term policy rate, in a range between 5.25% and 5.50% when it next meets on November 1,” Faucher told The Dallas Express in an email. “At this level, the fed funds rate is contractionary, weighing on economic growth. PNC expects the FOMC to keep the fed funds rate in its current range until mid-2024.”
Federal Funds Futures, according to the CME FedWatch Tool, is projecting an 86.2% probability that the Federal Open Market Committee (FOMC) will keep the fed target rate unchanged for its November meeting, up from nearly 80% a week earlier.
During the latest FOMC minutes posted on Wednesday, committee members reiterated their theme of “higher for longer,” suggesting one more rate increase in 2023 would be sufficient to round out the year. However, the FOMC said it would be carefully watching incoming data to determine the next stance for monetary policy.
“PNC expects inflation to continue to slow through the rest of 2023 and into 2024, Faucher told The Dallas Express. “Weaker economic growth, a softer labor market, and slower rent growth will all contribute to lower inflation. An expected mild and short recession starting in the second quarter of 2024 will further slow inflation next year as overall economic demand contracts,” he said.
The CPI report for October is scheduled to be released on Tuesday, November 14.
