As the threat of prolonged inflation threatens additional rate hikes tanking sectors of the market, consumer prices rose 8.2% in the 12 months ending in September—slowing down for a third consecutive month, but still climbing more than expected in a worrying sign for the broader economy.
Economists were expecting prices to rise 8.1% year over year after they spiked 8.3% in August.
Overall prices were up 0.4% on a month-to-month basis—exceeding economist expectations of 0.3% and up from 0.1% in August, according to data released by the Labor Department on Thursday.
Increases in rent, food and medical care prices were the biggest contributors to the overall spike, which was offset by a 4.9% decline in gas prices.
Core inflation, which excludes volatile food and energy prices, rose 0.6% on a monthly basis in September—failing to slow down from August and coming in worse than the 0.4% increase economists were projecting; the measure climbed to a 40-year high of 6.6% year over year.
“This is the Federal Reserve’s nightmare scenario,” Jan Szilagyi, the CEO of investment research firm Toggle AI, said in emailed comments, noting the spike in core prices signals overall inflation could remain entrenched because inflation is “far harder” to bring down for services than it is for energy.
Amid the historic rise in inflation, the Social Security Administration announced Thursday that benefits will jump 8.7% for 2023—the biggest cost-of-living adjustment (COLA) since 1981.
With prolonged inflation forcing central banks to hike interest rates aggressively this year, pockets of the economy have started to suffer immensely—particularly the housing and stock markets. New home sales plunged to a six-year low this summer, and the S&P 500 has shed about 25% of its value this year—reversing nearly two years of gains. A growing number of economists are worried additional rate hikes could further tank the economy, but Fed officials have remained steadfast in their commitment to lower inflation—even if it means risking a recession. On Wednesday, the Fed said additional hikes would help prevent the “far greater economic pain” associated with high inflation and added that the cost of taking too little action “likely” outweighs the cost of taking too much.
What To Watch For
Fed officials are slated to announce how big the next interest rate hike will be at the conclusion of their upcoming two-day policy meeting on November 2. Comerica Bank forecasts the Fed will authorize another 75-basis-point hike in November, followed by a half-point in December and a quarter-point in February—putting the Fed funds target at a “very restrictive” range of 4.5% to 4.75%.