Inflation continued to edge slightly lower last month, but the decline from historic highs remains painfully slow and a key measure set a new 40-year record.
Consumer prices rose 8.2% from a year earlier, down from an 8.3% increase in August and a four-decade peak of 9.1% in June, as rising food and rent costs again offset falling gas prices , according to the Ministry of Labour’s consumer price index. . Last month’s increase defied forecasts for a faster decline in inflation.
On a monthly basis, consumer prices increased by 0.4% higher than expected after a 0.1[ads1]% increase in August. And while headline inflation is gradually easing, a key measure of underlying price gains hit a new historic high last month.
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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 last month. That pushed the annual increase from 6.3% to 6.6%, a new 40-year high.
The report underscores how entrenched inflation has become in the US economy despite the Federal Reserve’s efforts to curb it with sharp interest rate hikes. And while the price increases are moderating, their broad-based effects ensure that the withdrawal will be gradual. In general, price increases for goods such as used cars and clothing are slowing, in part because supply chain problems are easing, but the cost of services, including rent and medical care, has increased.
Economists say the report will do little to deter the Fed from approving a fourth straight higher rate hike early next month to tame inflation.
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Buy in bulk to save money
Amber Flack, 45, of Pickerington, Ohio, has noticed the drop in gas prices, but that hasn’t led her to go back to her pre-pandemic spending habits because her grocery bill continues to climb.
She and her family spend up to $1,000 a month on groceries, up from no more than $600 before the price hike. They now buy items like canned vegetables, soft drinks and paper towels in bulk, saving more than $100 monthly.
“I don’t love the need to buy in bulk to get a fair price, but that’s what I do now,” she said.
They also drive less to save gas, stay within a radius of five kilometers from home, and have not taken a holiday since before the health crisis with covid-19. Previously, they took at least two big holidays a year.
10-year Treasury yields peak, stocks fall
In response to the government’s inflation report, bond prices fell, with the yield on the US 10-year Treasury above 4%, while the 2-year yield edged to nearly 4.5%.
Stocks fell with the Dow opening down about 500 points as investors priced in the likelihood of further aggressive Fed moves. It has since recovered some of its losses and was down 239 points, or 0.8%, as of 9:55 a.m. ET
Why are gas prices going up again?
Gas prices fell sharply for a third month due to falling global demand for oil and the recession. Pump prices fell 4.9% but were still up 18.2% annually 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 by 0.7% from August and have risen 13% over the past 12 months. Prices for commodities such as wheat and corn have generally fallen in recent months but remain volatile in part because of Russia’s war with Ukraine, which has disrupted a region that exports a significant share of those crops. Barclays expects double-digit annual food inflation through January.
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In September, the price of rice rose 1% from the previous month and 13.6% from the previous year. Cakes, cupcakes and cookies rose by 1.8% and are up 16% annually. And pork rose 1.8% and 6.7% from a year ago.
Some food costs fell. Uncooked mince fell 2% and eggs fell 3.5%, but are still up 30.5% year-on-year.
Other price movements were mixed. Rents rose 0.8% monthly and 7.2% over the past year as landlords responded to an earlier rise in house prices.
After falling for two months, airfares rebounded, rising 0.8% and 42.9% over the past year. Medical services increased by 0.7% and 6.5% annually. And new vehicle costs increased by 0.7% and 9.4% annually.
More encouraging was the continued decline in used car prices – which fell a further 1.1% – following a historic run-up as supply snarls for new cars. Clothing prices fell 0.3% and hotel prices fell 1%.
But the persistence of inflation is causing many Americans to dramatically change their behavior.
Michael Rossini, 57, of Randolph, Mass., is shelling out another $55 or so a week on groceries. And filling up his pickup now costs $170, up from $100 before the inflationary spike, even after this summer’s drop in pump prices.
He and his two teenage daughters no longer eat out, scrapping their annual three-week trip to Italy and monthly visits to the mall. He’s also become an avid DIYer, changing the oil in his truck and buying a $600 tractor so he can do his own landscaping.
While he could afford to maintain his former 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 this time back.”
There are signs that inflation should decrease noticeably in the coming months. Rents on new leases are falling and a sharp increase in health insurance premiums should partially reverse starting in October, according to Goldman Sachs and Pantheon Macroeconomics.
But the pullback is likely to continue to be slow, economists say
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Meanwhile, the disappointing report almost cements a fourth straight three-quarter point rate hike at the Fed in early November and raises the risk of a similarly sized move in December instead of the half-point hike Fed officials are currently planning, Pantheon chief economist Ian said. Shepherdson.
Inflation affects the Social Security COLA increase
High inflation has one positive effect. The government on Thursday also announced that Social Security benefits will rise by 8.7% next year – the fourth biggest increase since automatic inflation adjustments were introduced in 1975, as costs rise.
Contributor: Elisabeth Buchwald