- The Labor Department reported annual U.S. inflation at 3% in September.
- The rate is up from August but lower than economists were expecting.
- The change is not likely to impact another interest rate cut by the Fed.
U.S. inflation continued its upward trajectory in September but prices on goods and services, which rose 3% on an annual basis last month, increased less than many economists were predicting.
Friday’s Consumer Price Index report from the Labor Department was released over a week later than usual and is the only federal data that’s been released amid the ongoing government shutdown. That’s thanks to the need for updated inflation data to make annual cost of living adjustments to Social Security benefits, according to the Wall Street Journal.
CPI inflation moved up 0.3% on a monthly basis and came in at 3% over the past 12 months, up a tenth of a percent from August. Core inflation, which strips out volatile food and energy prices, rose 0.2% from August to September and matched the headline annual inflation rate of 3%. Last month’s core inflation rate eased slightly from August’s 3.1% measure.
Ahead of Friday’s report, most economists were predicting headline and core inflation rates would come in at 3.1% for September.
Although the Mountain West region, which includes Utah, have been experiencing annual inflation running well below the national rate for most of the past year, the last few months have seen the regional price increases moving up faster than the rest of the country. In September, inflation for the Mountain West region rose 0.4% on a monthly basis and came in at an annual rate of 2.9%.
Rising gasoline prices across the country were the biggest single contributor to the monthly uptick in the all items inflation reading, according to the Labor Department. Average gas prices moved up 4.1% from August to September, according to the report, but are still 0.5% below this time last year.
The average price for a gallon of regular at Utah service stations was $3.31 on Friday, according to AAA data tracking. While Utah gas prices are down by almost 10 cents per gallon in the last month, the state’s average rate is well ahead of the U.S. average, which was $3.07 per gallon on Friday.
Overall food prices across the U.S. rose by 3.1% in September compared to a year ago, with groceries increasing by 2.7% and food away from home 3.7% more expensive over the last 12 months.
Shelter costs, which account for about one-third of the CPI inflation calculation, rose 0.2% from August to September and were up 3.6% from a year ago.
Will rising inflation stall another Fed cut?
While U.S. inflation declined to a post-pandemic low of 2.3% in April, the cost metric has been on the rise since then and September’s 3% reading is the highest since January.
In spite of the inflation uptick, economists are predicting the Federal Reserve will follow up its September interest rate cut with another reduction at its policy meeting later this month.
“This report will clearly keep the Fed on track to cut rates,” Art Hogan, chief market strategist at B. Riley Wealth, told CNBC on Friday. “The Fed has been clear that they are more focused on the softening labor data and will continue to defend their full employment mandate, even with core CPI well above their 2% target.”
The central bank’s Congressional mandate of maintaining price stability and maximizing employment is in conflict right now from a monetary policy standpoint. While pesky inflation is currently on the rise and has remained stubbornly above the monetary body’s 2% target, the U.S. jobs market is in the midst of marked softening including dwindling hiring rates and slower wage growth.
Generally speaking, the Fed’s rate reductions help spur economic activity by reducing the cost of debt which can promote business activities like investment and hiring. Hiking rates increases the cost of consumer and commercial debt, quells spending and, theoretically, helps slow down inflationary price increases.
Last month’s rate cut, which saw the Fed levying a .25% reduction that brought its overnight lending rate down to the 4.0% to 4.25% range, reflects the monetary body’s decision to prioritize the labor side of its dual mandate.
At a press conference following last month’s meeting, Powell noted there were “no risk-free paths” in the current U.S. economic climate.
“I think you could think of this, in a way, as a risk management cut,” Powell said. “What’s different now is you see a very different picture of the risks to the labor market. We were looking at 150,000 jobs a month at the time of the last meeting and now we see the revisions and the new numbers.
“I don’t want to put too much emphasis on payroll job creation but it’s just one of the things that suggests that the labor market is really cooling off and that tells you that it’s time to take that into account in our policy.”