Inflation continued to fall a bit last month, but the decline from historic highs is still painfully slow, and a key measure set a new 40-year record.
Consumer prices rose 8.2% from a year earlier, down from 8.3% in August and a four-decade high of 9.1% in June, as higher food and rent costs once again offset lower gasoline prices, according to the Labor Department’s Consumer Price Index. . Last month’s increase came in defiance of expectations for a faster slowdown in inflation.
On a monthly basis, consumer prices rose more-than-expected 0.4% after a 0.1% increase in August. And while overall inflation is gradually declining, a key measure of core price gains reached a new historic high last month.
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Core prices, which strip out volatile food and energy and generally provide a better measure of long-term trends, were up 0.6% from August after a similar rise the previous month. That drove the annual increase from 6.3% to 6.6%, a new 40-year high.
In general, price increases for goods such as cars and used clothing are moderate, in part because supply chain problems are easing, but the cost of services, including rent and medical care, are rising.
Economists say the report will do little to dissuade the Federal Reserve from agreeing to a fourth consecutive large interest rate hike early next month to tame inflation.
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Buy in bulk to save money
Amber Flack, 45, of Pickerington, Ohio, has noticed lower gas prices, but that hasn’t prompted her to return to her pre-pandemic spending habits because her grocery bill keeps rising.
She and her family spend up to $1,000 a month on groceries, up from $600 before the price hike. They now buy things like canned vegetables, soda, and paper towels in bulk, saving over $100 a month.
“I don’t like having to buy in bulk to get a reasonable price but that’s what I’m doing now,” she said.
They also drive less cars to save fuel, stay within a five-mile radius of home, and haven’t taken a vacation since before the COVID-19 health crisis. Previously, they would take at least two big vacations a year.
10-year Treasury yields rise, stocks plunge
In response to the government’s inflation report, bond prices tumbled, with the yield on 10-year US Treasuries rising above 4%, while the two-year rate rose to nearly 4.5%.
Stocks fell with the Dow opening down about 500 points as investors priced in the possibility of more aggressive moves by the Federal Reserve. It subsequently regained some losses and was down 239 points, or 0.8%, as of 9:55 AM ET.
Why are gas prices rising?
Gas prices fell sharply for the third month due to declining global demand for oil and recession fears. Pump prices are down 4.9%, but are still up 18.2% annually and have risen in recent weeks after OPEC announced oil production cuts.
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Will food prices continue to rise?
Grocery prices are up 0.7% from August and up 13% over the past 12 months. Prices of commodities such as wheat and corn have fallen broadly in recent months, but have remained volatile in part due to Russia’s war with Ukraine, which has disrupted a region that exports a large share of those crops. Barclays expects annual food price inflation to double digitally during January.
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In September, the price of rice rose 1% from the previous month and 13.6% from the previous year. Cakes, cupcakes and biscuits products jumped 1.8% and increased 16% annually. Pork rose 1.8% and 6.7% from a year ago.
Some food costs have decreased. Uncooked ground beef is down 2% and eggs are down 3.5% but is still up 30.5% annually.
Other price movements were mixed. Rent has jumped 0.8% per month and 7.2% over the past year as landlords have responded to an earlier rise in home prices.
After falling for two months, airline ticket prices have resumed their upward march, rising 0.8% and 42.9% over the past year. Medicare services increased 0.7% and 6.5% annually. New car costs rose 0.7% and 9.4% annually.
More encouraging was the continued decline in used car prices – which fell another 1.1% – after the historic high as supplies of new cars dwindled. Clothing prices decreased 0.3% and hotel prices decreased 1%.
But persistent inflation is causing many Americans to dramatically modify their behavior.
Michael Rossini, 57, of Randolph, Massachusetts, pays an extra $55 or so per week on groceries. The cost to fill his pickup truck is now $170, up from $100 before inflation spiked, even after the summer dip in pump prices.
He and his two teenage daughters no longer dine out, and they canceled their annual three-week trip to Italy and their monthly visit to the mall. He also got so hungry to do it yourself that he changed the oil in his truck and bought a $600 tractor so he could do his landscaping.
While he was able to maintain his former lifestyle on his engineer’s salary, he worried about setting aside enough money for his daughters’ college expenses and retirement.
“I have to provide for my family,” he says. But he adds, “My quality of life has deteriorated…I can’t get it back this time.”
There are indications that inflation should ease significantly in the coming months. Rents are dropping on new leases, and the sharp rise in health insurance premiums is expected to be partially reversed starting in October, according to Goldman Sachs and Pantheon Macroeconomics.
But economists say the downturn will likely remain slow
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Meanwhile, the disappointing report almost cements the Fed’s fourth consecutive rate hike by three-quarters of a point in early November and raises the risk of a move of the same size in December rather than the half-point hike that Fed officials are tentatively planning, says the Fed’s chief economist. Pantheon Ian. Shepherdson.
Inflation affects the increase in social security COLA
High inflation has one positive effect. The government also announced Thursday that Social Security benefits will rise 8.7% next year – the fourth largest increase since automatic inflation adjustments were introduced in 1975, as costs increase.
The government bases its COLA adjustment on average annual increases in the CPI for urban wage earners and clerical workers, from July through September. This indicator largely reflects the broad CPI.
The Social Security Administration said Thursday that this cost-of-living adjustment, or COLA, will boost the average monthly checks retirees receive in January from $146 to $1,827.
Contributing: Elizabeth Buchwald
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