US Inflation Remains Persistently High at 8.2 Percent, Fueled by High Rent and Food Prices

People shop at a grocery store in New York City on May 31, 2022. (Samira Bouaou/The Epoch Times)

The U.S. annual inflation rate came in at 8.2 percent in September, down from 8.3 percent in August, according to the latest data from the Bureau of Labor Statistics. This was higher than the market expectation of 8.1 percent.

Core inflation, which strips the volatile food and energy sectors, rose to a 6.6 percent annual rate, a new four-decade high. This was up from 6.3 percent in August and higher than the market forecast of 6.5 percent.

On a monthly basis, the Consumer Price Index (CPI) rose 0.4 percent, while the core CPI surged 0.6 percent.

The major contributors to September inflation were increases in shelter, food, and medical care costs.

According to BLS data, a sustained rise in food costs continues to inflate the headline figure. The food index gained 0.8 percent in September, the same as in August, and was up 11.2 percent year on year.

The shelter index, which is closely watched, went up by 0.7 percent in September, which was also the same as in August. The rent index rose 0.8 percent last month and 6.7 percent year-over-year. And medical care costs rose 1 percent, after rising 0.8 percent in August.

The latest inflation data have exacerbated real wage growth (inflation-adjusted), which has been negative for 18 months. The change in real average hourly earnings, combined with a 0.9 percent drop in the average workweek, is now negative 3.8 percent.

Investors have been keeping a close eye on inflation readings as they might offer hints on whether the U.S. central bank could pivot on monetary policy.

With inflation at these levels, some investors are concerned about the Federal Reserve’s ability to control surging prices.

Speaking at the Institute of International Finance’s annual membership meeting on Oct. 12, BlackRock CEO Larry Fink warned that the central banks around the world have to use “a hammer” more often to fight inflation.

“We had in the United States in 2022 $1.1 trillion of fiscal stimulus,” he noted.

“Because of these fiscal policies, it forces the central banks to use a hammer more frequently, because it’s going to be harder to arrest that inflation.”

‘Fed’s Nightmare’

The latest consumer prices data came after wholesale prices were higher than what economists had anticipated.

In September, the Producer Price Index (PPI) rose 0.4 percent month-over-month, up from the 0.2 percent drop in August. The annual PPI also eased at a slower-than-expected pace of 8.5 percent, higher than the market consensus of 8.4 percent.

“This is Fed’s nightmare scenario: the risk that inflation stays entrenched because services inflation is far harder to bring down than energy inflation,” Jan Szilagyi, CEO and co-founder of Toggle AI, an investment research firm, wrote in a note. “The Fed will see this as a license to stay aggressive while the labor markets remain strong and the public tolerates rate hikes. More than that, they will maintain a hawkish message to avoid the perception that they are tip-toeing around the issue.”

Despite elevated prices, consumers are confident that inflation will come down next year. According to the latest Federal Reserve Bank of New York’s Survey of Consumer Expectations, consumer inflation expectations for the year ahead declined for the third consecutive month, coming in at a more than two-year low of 5.4 percent. Three-year-ahead inflation expectations edged up slightly to 2.9 percent last month, up from 2.8 percent in August.

U.S. consumers anticipate prices to rise faster for gasoline, college education, food, and rent.

John Rekenthaler, vice president of research at Morningstar, is confident that long-term inflation pressures will subside, alluding to the Fed Bank of Cleveland. The regional central bank forecasts the 10-year expected inflation rate will fall to 2.35 percent.

“We can I think be reasonably confident that long-term inflation will be milder than many investors now believe,” he wrote in a note.

Many traders have been hoping that the Fed will slow the pace of interest rate increases. However, the September Federal Open Market Committee (FOMC) policy meeting minutes revealed that there is no sign that the central bank may alter its quantitative tightening cycle soon.

“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes stated.

Some economists contend that the central bank is overtightening, which could exacerbate an economic slowdown. But Minneapolis Fed President Neel Kashkari told a town hall in Wisconsin that the bar for a pivot is “very high,” due to elevated inflation.

“If the economy entered a steep downturn, we could always stop what we’re doing. We could always—if we needed to—reverse what we’re doing, if we thought that inflation was headed back down very, very quickly,” he said. “For me, the bar for such a change is very high because we have not yet seen much evidence that the underlying inflation—the services inflation, the wage inflation, the labor market—that that is yet softening.”

Following the hot inflation report, the market’s anticipation of aggressive rate hikes has risen.

The CME FedWatch Tool now predicts a 97 percent possibility of a three-quarter-point rate increase at the November FOMC meeting, up from 84.5 percent previously. The probability of a 75-basis-point boost at the December meeting has also increased to 57 percent.

U.S. financial markets plunged on the CPI news before rallying to close more than 2 percent higher on Oct. 13.