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Fresh statistics reveal that consumer spending and inflation increased in September, even though the Fed continuously tries to fix inflation.
Despite the interest rate hikes by the Federal Reserve, inflation reportedly rose 0.4% in September in the US – more than expected. Data from the Bureau of Labor Statistics also show that consumer prices were up 8.2% from a year ago.
The consumer price index increased by 0.4% for the month topped the Dow Jones estimate of 0.3% for the same period. Furthermore, excluding the volatile food and energy prices, the core consumer price index accelerated by 0.6%. This increase is higher than Dow Jones 0.4% estimate. In addition, core inflation was also up 6.6% from a year ago. This represents the largest gain in 12 months since August 1982.
For September, headline inflation was up 8.2%. This sees it off its June peak of 9%, but still approaching high levels not seen since the early 1980s.
Markets now keenly look ahead to the coming months. According to analysts and market observers, the Federal Reserve could take further cues from the September inflation report. This may translate to subsequent percentage point rate hikes of 0.75 for the months of November and December.
September Inflation Report Provides Plenty to Ponder On
The unsavory inflation report and the prospect of more aggressive rate hikes initially shook financial markets. For instance, the value of stock market futures plunged while Treasury yields inversely spiked. Despite these developments, most of the earlier losses were reversed during the morning trading session. During the same period, the Dow Jones closed more than 800 points higher after a monumental one-day turnaround.
Commenting on September’s inflation report portends and the Fed’s likely response, chief US economist at the Mastercard Economics Institute, Michelle Meyer, said:
“The Federal Reserve has made it very clear they’re committed to price stability, they’re committed to reducing the inflationary pressures. The more inflation comes in above expectations, the more they’re going to have to prove that commitment, which means higher interest rates and cooling in the underlying economy.”
Amid September’s rising costs of food (0.8%), shelter (0.7%), transportation services (1.9%), and medical care services (1%), worker wages plunged further. According to reports, average hourly earnings were 0.1% monthly and 3% year over year when adjusted for inflation. However, despite these inflationary headwinds, Meyer observes that consumer spending remains strong. As she puts it:
“Inflation is able to run this hot in part because consumers have had very strong purchasing power. Consumers are still spending through these inflation increases, and the challenge therefore is larger for the Fed to effectively be able to rebalance the economy.”
Incoming Sales Report
The Federal Reserve has increased benchmark rates by 3 full percentage points since March. However, the extent to which this and higher prices have hurt consumerism may become clearer on Friday. This is because the market expects the Commerce Department and Census Bureau to release its retail sales report for September on Friday. Expectations are that the incoming non-inflation-adjusted data will show a monthly increase of 0.3% and no change when excluding auto sales.