A hotter-than-expected September Consumer Price Index (CPI) report has reignited concerns that the Federal Reserve may hold interest rates elevated or even pass another rate hike before year-end.
What do you need to know about today’s crucial inflation report?
Well, the CPI report released this morning showed annual inflation held steady in September, at 3.7% price growth, the same as in August, while increasing 0.4% on a monthly basis. This was above analyst forecasts for 0.3% monthly price growth on 3.6% annual inflation.
Meanwhile, so-called “core inflation,” which excludes the volatile Food and Energy categories, ticked up 0.3% month-over-month, representing a 4.1% yearly increase, both of which are in line with projections. Core prices also increased 0.3% on a monthly basis in August, although annual inflation was actually higher last month, coming in at 4.3%.
The Fed has been paying close attention to core inflation, which has been particularly resistant to the central bank’s monetary policy changes. As such, the notion of easing annual core inflation may come as a mildly promising sign.
Shelter costs, which make up roughly one-third of the total CPI weighting, continued to play a substantial role in September’s inflation reading. Indeed, Shelter costs increased 0.6% in the ninth month of the year, up 7.2% from the same time last year. According to the Labor Department, rising shelter costs accounted for more than 50% of the total monthly CPI increase.
Energy and Food costs also continued to increase on a monthly basis in September, 1.5% and 0.2%, respectively.
September CPI Report Suggests Fed Will Stay Hawkish
While relatively stagnant price growth is hardly cause for panic, the report has validated analyst expectations that the central bank may raise the benchmark rate at least one more time in 2023 or, at the very least, opt to keep interest rates at their current level.
If you recall, the Fed has been on a virtual rate-hike tour since 2022 as part of its battle against inflation. Fed Chair Jerome Powell has raised rates 11 times this cycle, bringing the Federal Funds Rate from nearly 0% to its current 5.25%-5.5% range.
While inflation has eased notably from the 9.1% annual rate recorded in June 2022, Powell continues to assure onlookers that the battle for 2% inflation is likely far from won. He told reporters last month:
“My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people. We understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve. Without price stability, the economy does not work for anyone.”
Elevated interest rates typically slow economic growth, which serves to lower prices. As such, many on Wall Street are on alert, looking for any potential signs of an impending recession as the Fed continues to keep rates at a restrictive level.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
