U.S. inflation warmed in September as pressure continued

The pace of U.S. consumer price growth peaked in September, reaching 13-year highs as food, energy and rental costs rose under inflationary pressures.

The consumer price index, released by the Bureau of Labor Statistics on Wednesday, rose 5.4 percent in September from a year earlier, slightly higher than the annual increase in August. Analysts had expected a 5.3 percent increase.

On a monthly basis, prices rose 0.4 percent, up from 0.3 percent a month earlier.

Excluding volatile items like food and energy, the “core” CPI has risen 0.2 percent since August. This compares with a 0.1 percent increase in the previous month-on-month and maintains an annual pace of 4 percent.

“Inflation is here and will not go away in the coming months,” said Peter Tichir, a global macro strategist at Academy Securities.

Food prices for the month rose significantly by 0.9 percent and the cost of shelter was also higher. These two categories were together for more than half of the monthly growth in the title figure.

The “food at home” index rose 1.2 percent over the month as the index of the food group in the six largest grocery stores rose, bringing the annual growth to 4.5 percent. Dining costs also rose, up 4.7 percent for the year.

Credit Suisse chief economist James Sweeney said: “Fuel and food inflation have been the epicenter of new short-term supply shocks.”

Energy prices rose 1.3 percent in September and 24.8 percent for the year. On Wednesday, the U.S. Energy Information Administration individually forecast a sharp rise in domestic heating bills this winter as the global energy crisis begins to reach American consumers.

Costs have risen faster than fuel supplies, it said, as the U.S. economy recovered from last year’s epidemic weakness but producers have struggled to increase oil and natural gas production, which is the main input to household heat and electricity. It is forecast to be colder than the upcoming winter forecast, resulting in higher demand for heat.

The administration predicts that households will spend 54 percent more on propane, 43 percent more on heating oil, 30 percent more on natural gas and 6 percent more on electric heating.

“The higher global and domestic energy prices that have begun to rise again in the economy are set to transform into larger household bills for energy this winter,” said Stephen Naly, acting director of administration.

High inflation has reduced the purchasing power of consumers. The Social Security Administration said Wednesday that about 70 million Americans will receive a 5.22 percent increase in their benefits by 2022, the largest adjustment to livelihoods in four decades. For some workers, this adjustment increases the measure of inflation.

Economists and policymakers have long debated how the ongoing consumer price rise will translate into sustained inflation that extends beyond sectors such as used cars and travel-related spending, the most sensitive to epidemic-related disruptions and the lion’s share driven so far.

Prices of used cars and trucks fell another 0.7 percent in September after falling 1.5 percent in the previous month. For the year, however, prices still rose 24.4 percent. Airline fares fell 4.4 percent after falling 1.1 percent in August. Clothing prices fell 1.1 percent for the month, the highest in five months.

But data from September showed that price pressures were beginning to spread elsewhere – a dynamic noted by Rafael Bostick, president of the Atlanta branch of the Federal Reserve, and other officials.

Owner equivalent rent (OER) – Homeowners believe what their property will rent – and rents posted their biggest increase since 2000, rising 0.4 percent and 0.5 percent for the month, respectively.

Furniture and appliances have become more expensive, with the household furniture index rising 1 percent in September. Supply chain disruptions pushed up the price of new cars, which rose 1.3 percent in September after rising 1.2 percent in the previous month.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, said: “This report brings home that there is a single component here that is going to run co-pilots with supply chain issues and that is equal pay for owners.”

Fed Chair Jay Powell says inflationary pressures will ease over time, acknowledging that the intensity of supply chain disruptions that have increased ongoing price pressures has surprised the US Federal Reserve.

IMF chief economist Geeta Gopinath echoed her warning, telling the Financial Times this week that central banks need to be “very, very cautious” about the risk of inflation.

The latest data comes on the basis of a policy pivot from the Fed, which is preparing to reduce or “tap” its 120 120 billion asset purchase program.

Bostick told the FT on Tuesday that the process should begin next month and be completed by next year so that the Fed can be given space to raise interest rates if necessary. A growing number of officials are now seeing an adjustment in early 2022, with at least three rate increases before the end of 2023.

Additional report by Derek Brower

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