Inflation continues to wreak havoc in the U.S., despite broadly holding steady, as the Federal Reserve (Fed) tussles over whether to hike more interest rates after already setting the bar at a 22-year high years. Prices rose 0.4% in September compared to August, a bigger than forecast increase of 0.3%, although below July’s 0.6%.
Year-to-date, prices stand at 3.7%, still far from the Fed’s 2% target and slightly higher than analysts had expected (3.6%) . Compared to the previous month, the rate remains unchanged.
The increase in the cost of oil contributed decisively to the fact that prices did not fall as predicted, while more problems are now being seen with regard to the supply of fuel due to the conflict between Israel and Palestine.
Excluding the most volatile items, such as energy and food, core inflation rose 0.3% monthly and 4.1% annualized, both figures in line with expectations. These are percentages closely watched by the Fed when deciding on monetary policy.
In line with recent trends, housing was the most relevant factor in the increase in inflation. It represented a third of the rise in the consumer price index, with an acceleration of six tenths, which placed it at a level of 7.2% in relation to last year .
The cost of energy rose by 1.5%, including 2.1% for gasoline and 8.5% for oil. Food rose 0.2% for the third consecutive month. The price of services, a key element in assessing the direction of long-term inflation, also added 0.6% and stood at 5.7% in the twelve-month comparison.
The stock market showed a modest reaction to this new price report, with slight gains when it was heard.
The data show that wages fell in real terms. The hourly average increased by 0.2% in August, below the monthly increase in inflation. On an annual basis, the salary increase reaches 0.5%.
All of these elements may play an important role when US central bank governors meet in November. According to the minutes of the September meeting, when they left rates as they were, the members of the Fed considered that they had to maintain the policy of containing inflation. Some expressed their disagreement about what more should be done in this restrictive policy to bring prices under control, measures that have not yet succeeded in curbing either demand or the labor market.
Most indicated that a further increase would be appropriate in the future, probably before the end of the year. The Fed is at the crossroads of looking for falling prices without taking the economy into recession. Rising interest rates make it increasingly difficult to get a loan, making it harder for people to decide whether to buy a house or a car.
Investors seem to bet that the Fed has ended the period of making money more expensive. The Federal Reserve has raised interest rates eleven times since March 2022 and has placed them at 5.25%-5.5%, from practically zero. Inflation climbed to an annualized 9.1% in June last year.
