Soaring rents and food prices keep US inflation high; tight labor market

  • Consumer prices rose 0.4% in September
  • The CPI increases by 8.2% over one year
  • Core CPI increases by 0.6%; jumped 6.6% year over year
  • Weekly jobless claims rise by 9,000 to 228,000

WASHINGTON, Oct 13 (Reuters) – U.S. consumer prices rose more than expected in September as rents rose the most since 1990 and the cost of food also rose, bolstering expectations that the Federal Reserve will offer a fourth consecutive interest rate of 75 basis points. hiking next month.

Thursday’s Labor Department report also showed a measure of core inflation posting its largest annual increase in 40 years as consumers also pay more for health care. The data followed last week’s strong jobs report, which showed strong job gains in September and a drop in the unemployment rate to a pre-pandemic low of 3.5%.

“That’s not what the Fed wants to see six months into one of the most aggressive tightening cycles in decades,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto.

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The consumer price index rose 0.4% last month after gaining 0.1% in August. Economists polled by Reuters had forecast the CPI to rise 0.2%.

Food prices rose 0.8%, with the cost of food at home rising 0.7% amid increases in all six major grocery food groups. Equivalent landlord rent, a measure of how much landlords would pay to rent or earn by renting out their property, rose 0.8%, the biggest increase since June 1990.

The large jumps offset a 4.9% drop in gasoline prices. But gasoline prices have likely bottomed out after last week’s decision by the Organization of the Petroleum Exporting Countries and its allies to cut oil production.

The war in Ukraine also poses an upside risk to food prices. Private industry data suggests rents could be near a peak.

Stubbornly high inflation, which is well above the Fed’s 2% target, is not only a challenge for the US central bank, but also a blow to President Joe Biden and the hopes of the Democrats to retain the control of Congress in next month’s elections.

In a statement, Biden acknowledged the pain that rising prices were inflicting on American families, but also pointed to the considerable slowdown in the third quarter, with inflation rising to an average annualized rate of 2% after an 11% pace in the quarter. previous.

In the 12 months to September, the CPI rose 8.2% after rising 8.3% in August, decelerating for a third consecutive month. The annual CPI peaked at 9.1% in June, the strongest rise since November 1981.

Financial markets have almost fully priced in the prospect that the Fed will hike rates an additional three-quarters of a percentage point at a policy meeting on Nov. 1-2, according to CME Group’s FedWatch tool.

The Fed raised its key rate from near zero in March to the current range of 3.00% to 3.25%. Policymakers at the Sept. 20-21 meeting “expected inflationary pressures to persist in the near term,” according to meeting minutes released Wednesday.

Stocks on Wall Street were trading higher. The dollar slipped against a basket of currencies. US Treasury yields rose.

WIDE PRESSURE

Excluding the volatile food and energy components, the CPI rose 0.6% in September, matching August’s rise. The so-called core CPI is largely influenced by higher rental housing costs.

Pressure also comes from healthcare costs, which jumped 0.8%, the most since October 2019, as consumers pay more for doctor visits. Rents and health care are the most sticky components of the CPI, suggesting that inflation could remain elevated for some time, even if property prices moderate. Prices for basic services rose 0.8%, the biggest increase since 1982.

Prices for new motor vehicles rose 0.7% as supply remained tight. Auto insurance also cost more, as did home furnishings and operations, grooming, education and airfare. But clothing prices fell 0.3% and used car and truck prices fell for a third consecutive month. This resulted in prices for basic goods remaining unchanged, mirroring a similar reading in Wednesday’s producer price report for September.

Much of this is a function of slowing demand and loosening global supply chains, which economists say could lead to a period of falling commodity prices, or even downright declines. But with the return of spending to services, this would not be enough to curb inflation considerably.

Core CPI jumped 6.6% in the 12 months to September, the highest since August 1982, after rising 6.3% in August.

With CPI and PPI data in hand, economists estimate the closely watched Personal Consumption Expenditure (PCE) price index rose 0.4% in September, which would bring the increase year-on-year to 5.1% versus 4.9% in August. PCE inflation data will be released at the end of the month.

“High services inflation is a reflection of the resilience of the labor market, as services are labor intensive and locally produced,” said Michael Gapen, chief U.S. economist at Bank of America Securities at New York.

“The Fed needs to slow the labor market significantly to bring inflation back to its target.”

While a second report from the Labor Department showed that the number of Americans filing new claims for unemployment benefits increased last week, it was likely due to Hurricane Ian, which caused a wave of destruction across Florida and the Carolinas in late September.

Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 228,000 for the week ended Oct. 8. Unadjusted claims jumped 32,275 to 199,662. Claims jumped 10,368 in Florida. There were also strong increases in filings in New York, California and Texas, while claims in Puerto Rico remained high following Hurricane Fiona.

The number of people receiving benefits after a first week of help, an indicator of employment, rose by 3,000 to 1.368 million in the week ending October 1. There were 1.7 job openings for every unemployed person on the last day of August.

“The labor market remains extremely tight and companies continue to be unwilling to lay off workers,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao

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