Worsening inflation will push the Fed to keep raising rates | News, Sports, Jobs

WASHINGTON (AP) — U.S. inflation accelerated in September, with the cost of housing and other necessities mounting pressure on households, wiping out wage gains and ensuring the Federal Reserve will continue to aggressively raise wages. interest rate.

Consumer prices, excluding volatile food and energy costs, jumped 6.6% in September from a year ago – the fastest pace in four decades. And on a monthly basis, like “heart” prices rose 0.6% for the second straight time, defying expectations of a slowdown and signaling that the Fed’s multiple rate hikes have yet to ease inflationary pressures. Basic prices generally provide a clearer picture of underlying price trends.

Overall prices rose 8.2% in September from a year earlier, down slightly from August, the government said in its monthly inflation report on Thursday. But from August to September, prices rose 0.4%, faster than the increase from July to August. Although cheaper gasoline helped slow the broadest measure of inflation, more expensive food, medical care and housing highlighted the extent of price pressures across the country. ‘economy.

“We still have no evidence that inflation is decelerating,” said Matthew Luzzetti, an economist at Deutsche Bank. “Not to mention the clear and compelling evidence the Fed is looking for. »

Stock markets fell sharply in early trading, but then rebounded and rose. The Dow Jones gained 560 points, or 1.9%, at midday.

Thursday’s report represents the final U.S. inflation numbers ahead of the Nov. 8 midterm elections after a campaign season in which soaring prices stoked public anxiety, with many Republicans blaming it. on President Joe Biden and congressional Democrats.

Even with widespread price spikes, September data showed prices for many physical goods, including clothing, used cars, furniture and appliances, fell last month. A key factor is that supply chain grunts have eased and many large retailers such as WalMart and Target have reduced some items to eliminate excess inventory.

Still, the price declines weren’t as sharp as many economists had expected, and they were more than offset by sharp increases in the prices of services, including health care, auto repair and housing. .

A measure of housing costs jumped 0.8% in September, the biggest such increase in 32 years. The Fed’s rate hikes have led to much higher mortgage rates – the average for a 30-year fixed home loan is nearly 7% – and have driven down home sales and prices. But falling house prices will take time to trickle down to government action.

The cost of health insurance jumped 2.1% from August to September and more than 28% in the past 12 months, a record year-on-year increase. Auto repair costs jumped 15% in September from a year earlier, also a record high. Supply chains for many auto parts are still disrupted.

“The main driver of inflation has shifted away from the prices of goods and services”, said Eric Winograd, US economist at AB. “Services inflation is heavily influenced by wages, so it will take a significant weakening in the labor market to bring inflation under control.”

Services inflation is also fueled by sustained consumer demand. Although there are signs that lower-income Americans are cutting spending, higher-income households still seem willing to spend on travel, restaurant meals and services like veterinary care.

Delta and American Airlines, for example, saw strong revenue growth this week, driven by increased demand from travelers. Air fares rose 0.8% from August to September.

Service companies need to raise wages quickly to attract the workers they need. These higher labor costs, in turn, are often passed on to consumers in the form of higher prices.

Inflation has inflated families’ grocery bills, rents and utility costs, among other expenses, causing hardship for many and deepening pessimism about the economy despite strong growth in the economy. employment and historically low unemployment.

Kasondra Mathews is among those feeling the pressure. Mathews, 50, who lives near Denver, worked overtime as a nursing assistant to meet her rent and grocery bills. His rent has increased by about 5% per year for the past few years, which has reduced his budget for other items.

With her daughter graduating from high school and college soon, Mathews found ways for her to apply to her favorite schools for free. She also forgoes any college visits to avoid travel expenses.

“We couldn’t do university tours, because we can’t afford it,” she says. “I couldn’t do the things you would want to do for your eldest.”

As the election approaches, Americans are increasingly taking a dim view of their finances, according to a new survey from the Associated Press-NORC Center for Public Affairs Research. Around 46% of people now describe their personal financial situation as poor, up from 37% in March. This significant drop contrasts with the mostly flat readings that have endured through the pandemic.

The September inflation figures essentially guarantee that the Fed will raise its short-term policy rate by three-quarters of a point for a fourth consecutive time at its next meeting in early November. The Fed has already raised its short-term policy rate by 3 percentage points since March, the fastest rate of increase since the early 1980s. The increases are aimed at raising borrowing costs for mortgages, loans automobiles and business loans and curb inflation by slowing the economy.

At their last meeting in late September, Fed officials predicted that by early next year they would raise their key rate to around 4.5%, the highest level in 14 years. Some economists are now predicting that the Fed will have to hike rates even higher to defeat what appears to be an entrenched inflation spurt. The risk is that these higher borrowing costs push the economy into recession.

Fed policymakers said at the September meeting that inflation was “showing few signs so far of slowing down”, according to the minutes of the last Fed meeting.

Used car prices fell 1.1% from August to September, the third straight decline. Wholesale used car prices fell much faster, but dealers resisted passing those declines on to consumers, leading to much higher profits.

Federal Reserve Vice Chair Lael Brainard noted this week that retailers also reported healthy profit margins, having raised prices more than they raised wages.

“The return of retail (profit) margins to more normal levels could contribute significantly to reducing inflationary pressures on some consumer goods,” said Brainard.

Some big chains have started lowering prices. But it is unclear what effect on inflation this will have in the coming months. Walmart said it would offer deep discounts on items including toys, homewares, electronics and beauty. Target began rolling out vacation deals earlier this month.

But after driving up prices over the past 18 months, companies are reluctant to back down. Until consumer demand slows further, forcing more businesses to compete on price, the costs of many goods are likely to remain high, economists say.

“There is a saying in economics that prices go up like rockets and come down like feathers,” said Eric Swanson, a former Fed economist who is now a professor at the University of California at Irvine. “You’re kind of seeing that a bit.”

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