Consumer Prices Rise in September More Than Expected on Housing, Gas

Consumer prices rose 0.4% in September, more than economists had expected, as rising costs for shelter drove the increase, the Labor Department reported on Thursday.

On an annual basis, the consumer price index was unchanged for the month, at 3.7%.

The core CPI, leaving out energy and food costs, rose 0.3%, while the yearly rate dropped to 4.1% from 4.3% previously. That is the lowest pace since September of 2021.

A 2.1% increase in the price of gasoline in September was also a contributor to the overall rise, though that was far less than the 10.6% spurt in August.

The CPI release follows Wednesday’s producer price index that rose more than expected, at 0.5% for the month, and 2.2% for the year. But, over the last 12 months, consumer inflation has fallen from an 8.2% pace – although it remains well above the 2% annual goal set by the Federal Reserve.

“The risk of the inflation slowdown proving to be a siren song is enough to keep the Fed vigilant in its fight to combat it by keeping rates where they are for a while, but the

motivation for a hike to speed up the deflation process is getting dimmer by the day,” Johan Grahn, head ETF market strategist at Allianz Investment Management, said ahead of the CPI’s release.

Minutes of the Fed’s September meeting, where officials left interest rates unchanged, released on Wednesday showed that the central bank still feels that rates need to continue in a “restrictive” range for the time being and that the possibility of another rate hike is on the table.

“Participants noted that the data received over the past several months generally suggested that inflation was slowing,” a summary of the minutes said. “Even with these favorable developments, they emphasized that further progress was needed to get inflation down to 2%.”

The bond market has responded to the Fed’s “higher for longer” message with yields on U.S. Treasurys rising sharply in recent weeks. That has had the effect of helping cool off the economy although it remains more resilient than many expected at the start of the year. Indeed, the GDPNow estimate from the Atlanta Federal Reserve Bank has third quarter gross domestic product growing by 5.1% as of this week.

One key factor in overall inflation is the pace of wage growth, and there the picture is improving with the latest data from the Indeed Wage Tracker showing that wages in September were growing over the last three months at an annualized pace of 4.3%, less than half the 9.3% pace of January 2022.

“Posted wage growth has now retracted more than 80% of its surge from its pre-pandemic pace,” the online job firm said. “If the Indeed Wage Tracker continues on its current trajectory, posted wage growth will return to 3.1%, its average annual rate in 2019, by early next year.”