Inflation continued to ease a bit last month, but the descent from all-time highs remains painfully slow and a key metric set a new 40-year high.
Consumer prices rose 8.2% from a year earlier, compared with an 8.3% rise in August and a four-decade high of 9.1% in June, the rise in prices for food and rent again offsetting lower gasoline prices, according to the Labor Department’s Consumer Price Index. . Last month’s increase defied expectations of a faster slowdown in inflation.
On a month-to-month basis, consumer prices edged up 0.4%, more than expected, after rising 0.1% in August. And while headline inflation is gradually easing, 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 commodities and generally provide a better measure of longer-term trends, rose 0.6% from August after a similar rise the previous month. This pushed the annual increase from 6.3% to 6.6%, a new high in 40 years.
Generally, price increases for goods such as used cars and clothing are moderating, in part because supply chain issues ease, but the cost of services, including rent and medical care, increased.
Economists say the report will do little to dissuade the Federal Reserve from approving a fourth consecutive interest rate hike early next month to get inflation under control.
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Buy in bulk to save money
Amber Flack, 45, of Pickerington, Ohio, has noticed the drop in gas prices, but it hasn’t led her back to her pre-pandemic spending habits as her grocery bill continues to climb.
She and her family spend up to $1,000 a month on groceries, up from just $600 before the price spike. They now buy items such as canned vegetables, sodas and paper towels in bulk, saving more than $100 a month.
“I don’t like the need to buy in bulk to get a reasonable price, but that’s what I do now,” she said.
They also drive less to save gas, stay within five miles of their homes and haven’t taken a vacation since before the COVID-19 health crisis. Previously, they took at least two long vacations a year.
10-Year Treasury Yield Climbs, Stocks Fall
In response to the government’s inflation report, bond prices fell, with the 10-year US Treasury yield rising above 4%, while the 2-year rate rose to nearly 4.5% .
Stocks fell with the Dow Jones opening down around 500 points as investors factored in the likelihood of further aggressive action from the Fed. It has since recouped some of the losses and was down 239 points, or 0.8%, as of 9:55 a.m. ET.
Why are gasoline prices going up?
Gas prices fell sharply for a third month on lower global oil demand and recession concerns. Prices at the pump fell 4.9% but were still up 18.2% a year and have risen in recent weeks after OPEC announced cuts in oil production.
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Will food prices continue to rise?
Grocery prices rose 0.7% from August and are up 13% over the past 12 months. Prices of commodities such as wheat and maize have generally fallen in recent months, but remain volatile in part due to the war between Russia and Ukraine, which has disrupted a region that exports a large share of these crops . Barclays expects double-digit annual food inflation until January.
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In September, the price of rice increased by 1% compared to the previous month and by 13.6% compared to the previous year. Cakes, cupcakes and cookies jumped 1.8% and are up 16% annually. And pork climbed 1.8% and 6.7% from a year ago.
Some food costs have dropped. Uncooked ground beef fell 2% and eggs 3.5%, but are still up 30.5% annually.
Other price movements were mixed. Rents jumped 0.8% per month and 7.2% over the past year as landlords reacted to an earlier rise in home prices.
After falling for two months, airfares have resumed their upward trend, rising 0.8% and 42.9% over the past year. Medical care services increased by 0.7% and 6.5% per year. And the costs of new vehicles have increased by 0.7% and 9.4% per year.
More encouraging was the continued decline in used car prices – which fell a further 1.1% – after a historic rise as the supply of new cars eased. Clothing prices fell 0.3% and hotel rates 1%.
But the persistence of inflation is leading many Americans to drastically change their behavior.
Michael Rossini, 57, of Randolph, Massachusetts, shells out about $55 more a week on groceries. And filling up your van now costs $170, up from $100 before the peak of inflation, even after the summer drop in pump prices.
He and his two teenage daughters no longer dine out and have given up their annual three-week trip to Italy and their monthly visit to the mall. He also became an avid handyman, changing the oil in his truck and buying a $600 tractor so he could do his own landscaping.
While he could afford to maintain his previous lifestyle on his engineering salary, he worries about setting aside enough money for his daughters’ college expenses and his own retirement.
“I have to provide for my family,” he says. But, he adds, “My quality of life has gone down…I can’t get that time back.”
There are some signs that inflation should decline significantly over the next few months. Rents for new leases are falling and the sharp rise in health insurance premiums should partly reverse from October, according to Goldman Sachs and Pantheon Macroeconomics.
But the pullback is likely to continue to be slow, economists say
How many rate hikes are expected in 2022?
Meanwhile, the disappointing report all but cements a fourth consecutive three-quarter-point Fed rate hike in early November and raises the risk of a similarly sized move in December instead of the half-point hike that Fed officials are tentatively planning, says Hall of Fame chief economist Ian Shepherdson.
Inflation affects Social Security COLA increase
High inflation has a positive impact. The government also announced on Thursday that social security benefits are set to rise by 8.7% next year – the fourth biggest increase since automatic inflation adjustments were introduced in 1975 as costs rise.
The government bases its COLA adjustment on the average annual increases in the consumer price index for urban wage earners and office workers from July to September. This index largely reflects the general CPI.
This cost-of-living adjustment, or COLA, will increase the average monthly checks retirees receive in January by $146 to $1,827, the Social Security Administration announced Thursday.
Contributor: Elisabeth Buchwald