Inflation Tops Market Estimates as Food, Shelter Costs Rise in September

Inflation came in slightly higher than economists’ expectations as food and shelter costs rose in September.

The consumer price index (CPI) jumped at a higher-than-expected pace of 0.2 percent monthly.

Core inflation, which excludes volatile energy and food categories, rose to 3.3 percent in September, up from 3.2 percent the previous month. This was also higher than the consensus estimate of 3.2 percent and represented the first increase since March 2023.

The core CPI also increased at a higher-than-expected rate of 0.3 percent, unchanged from August.

The food index surged 0.4 percent from August to September as supermarket prices swelled by 0.4 percent. Additionally, five of the six major grocery store food group indexes jumped, led by the meats, poultry, fish, and eggs category, which climbed 0.8 percent. Eggs rocketed more than 8 percent. Fruits and vegetables also advanced by 0.9 percent.

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Food away from home also rose to 0.3 percent, with full-service meals (restaurant) and limited-service meals (fast food) increasing by 0.4 percent and 0.2 percent, respectively.

Shelter inflation continues to be elevated as U.S. home prices and rents remain at or slightly below record highs.

The index increased by 0.2 percent monthly and decelerated below 5 percent, signaling that broader housing cost pressures might be easing. The indexes for owners’ equivalent rent and rent rose to 0.3 percent over the month.

Despite expectations among policymakers and economists that shelter costs would ease by now, Federal Reserve Chair Jerome Powell accepted that he “misjudged” housing inflation and warned that it will persist for “some years.”

At the September post-meeting press conference, Powell told reporters that high home prices are not “something the Fed can really fix.”

In September, energy prices plunged by 1.9 percent as gasoline and fuel oil plummeted by 4 percent and 4.1 percent, respectively. Electricity costs rose to 0.7 percent.

The latest inflation data did not take into account the recent upward climb in crude oil prices, fueled by geopolitical tensions in the Middle East.

Prior to the escalation between Hezbollah and Israel, oil prices had been slumping due to expectations of supply increases, particularly from members of the Organization of the Petroleum Exporting Countries (OPEC). Additionally, demand from China, the world’s largest petroleum exporter, has tumbled from weakening economic conditions.

However, with investors bracing for a potential retaliatory strike by Israel against Iran, the leading oil benchmarks—West Texas Intermediate (WTI) and Brent—have risen as much as 10 percent in the last two weeks. Traders are concerned that a broader conflict in the region would threaten production.

Other notable features of the September CPI report were the 1.2 percent spike in motor vehicle insurance, a 1.1 percent boost in apparel prices, and a 0.4 percent increase in medical care services. The overall services inflation surged by 0.4 percent last month.

Looking ahead to next month’s CPI report, the annual inflation rate is expected to climb to 2.4 percent amid rising energy prices.

Since January 2021, cumulative inflation has totaled more than 20 percent.

Market Reaction

U.S. stocks retreated at a modest pace following the inflation data before the opening bell. The leading indexes tumbled as much as 0.4 percent.

Treasury yields extended their gains on Oct. 10, with the benchmark 10-year yield reaching 4.08 percent. The two-year yield changed slightly at 4.01 percent, and the 30-year bond climbed to 4.36 percent.

The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, fell to 102.8.

Bryce Doty, senior vice president and senior portfolio manager at Sit Investment Associates, told The Epoch Times that despite the higher-than-expected reading, “it’s still a relief it wasn’t worse.”

Doty said this could support the case for a 25-basis-point interest rate cut at next month’s Fed policy meeting.

“The Federal Reserve isn’t yet in position to declare ‘mission accomplished’ in the battle against inflation, and the ride to the 2 percent target continues to be bumpy at times,” Mark Hamrick, senior economic analyst at Bankrate, told The Epoch Times.

“Disinflation continues, but anyone who thought the Fed was going to lower rates by another .50 basis points in November is dead wrong,” said Jamie Cox, managing partner at Harris Financial Group.

“When interest rates aren’t high enough to lower growth, they aren’t high enough to stifle inflation completely either. The Fed will lower rates but at a measured pace from here,” Cox told The Epoch Times.

In recent months, the monetary authorities have placed a greater emphasis on the other side of its dual mandate: maximum employment. As inflationary pressures ebb, the Fed is more focused on preventing the labor market from further cooling.

“We do not seek or welcome further cooling in labor market conditions,” Powell said in his Jackson Hole Economic Symposium speech in August. “We will do everything we can to support a strong labor market as we make further progress toward price stability.

“With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market.”