13 October: Annual Trend Down Despite Month-On-Month Uptick
Inflation in the United States continued to edge lower last month, but at a slower than expected rate, writes Andrew Michael.
Today’s figures from the US Bureau of Labor Statistics show that the consumer prices ‘all items’ index rose by 8.2% in the year to September 2022, down from the 8.3% increase recorded in July.
The 0.1 percentage point dip was half the figure predicted by forecasters.
The Bureau said increases to the cost of housing, food and medical care over the month were partly offset by a fall in the price of gasoline. But it noted that the cost of natural gas and electricity both rose over the same period.
On a monthly basis, the Bureau reported that consumer prices rose by 0.4% between August and September. This compared with an increase of 0.1% from July to August 2022.
The Bureau’s core consumer prices reading for September, that excludes both food and electricity, came in at 6.6%, a 40-year high. This was above the 6.5% that was expected, as well as August’s figure of 6.3%.
Today’s news will increase pressure on the Federal Reserve, the US central bank, to continue its aggressive monetary tightening policy, including increasing interest rates.
Yesterday, the Fed indicated that it was more concerned about not doing enough to head off soaring US inflation, than doing too much.
Minutes released from its September 2022 meeting, at which the Fed imposed its third consecutive 0.75 percentage point rate rise, showed that central bankers remained committed to “purposefully” tightening monetary policy in the face of “broad-based and unacceptably high inflation”.
US benchmark interest rates currently stand in the range 3% to 3.25%. The Fed’s next rate-setting announcement will be made on 2 November.
The Fed’s stated objective is to achieve maximum employment and inflation at the rate of 2% over the long run – the same rate as the Bank of England.
The UK’s inflation figure will be announced next Wednesday, 19 October. The Bank of England is scheduled to make its next Bank rate decision on 3 November.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “As was widely expected, today’s US CPI numbers once again showed that inflation is gradually easing on the back of lower gasoline prices, dipping to 8.2% in the 12 months to September compared to 8.3% in August.”
He added: “Despite cooling off slightly, inflation remains high and we would therefore expect to see another 0.75% interest rate hike at the next meeting and for the Federal Funds rate to be close to 4.5% by year-end. Investors continue to pray for a Fed pivot, but they may need to be patient.”