U.S. consumer prices increase solidly in September

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WASHINGTON, Oct 13 (Businesshala) – US consumer prices rose solid in September and are set to rise further in the coming months amid rising costs of energy products, which will cast doubt on the Federal Reserve’s view that high inflation is momentary.

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The Labor Department said on Wednesday that the consumer price index rose 0.4% last month after climbing 0.3% in August. In the 12 months to September, the CPI rose 5.4% after rising 5.3% year-on-year in August.

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Excluding volatile food and energy components, the CPI climbed 0.2% in August, the smallest gain in six months, compared with a 0.1% gain in August. The so-called core CPI grew 4.0% year-on-year after a 4.0% increase in August.

Economists polled by Businesshala had forecast the overall CPI to rise 0.3% and the core CPI to grow 0.2%.

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Oil prices rose to their highest level in years on Monday amid a surge in global demand following the COVID-19 pandemic. Although Brent crude futures fell on Wednesday, prices remained above $80 a barrel. Natural gas prices have also skyrocketed.

Expensive energy products will accelerate wage growth, exerting upward pressure on inflation. The government reported last week that average hourly earnings increased the most in seven months on a year-on-year basis in September due to labor shortages.

Wage inflation is set to rise further, with the number of people leaving their jobs voluntarily in August and at least 10.4 million vacancies.

Fed Chairman Jerome Powell has repeatedly said that high inflation, for which he blamed disruptions in the supply chain, was fleeting. Nearly two years have passed since the global pandemic, but there are no signs of easing the supply chain.

This has led to shortages of goods such as motor vehicles and higher prices for consumers.

“The right place to look for inflation is not only in the so-called inflation data, but also in the tight labor market and associated wage growth,” said Andrew Hollenhorst, chief economist at Citigroup in New York.

“Firms that believe passing on input costs can make higher energy prices a driver of broader inflation.”

The September CPI report will have no impact on the timeline for rolling back the Fed’s massive monthly bond purchase program. The US central bank indicated last month that it could start reducing its asset purchases as early as November.

Economists expect the announcement to be made at the policy meeting to be held on November 2-3.

“The central bank has already said that inflation has reached the threshold of subsidence, that’s the job market,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The CPI could elicit a reaction in the bond market because it could replace market expectations for the timing of the first rate hike by the Fed, which, in our opinion, is still far on the horizon.”

The Fed’s preferred inflation measure for its flexible 2% target, the main personal consumption spending price index, rose 3.6% in the 12 months through August, rising by the same margin for the third straight month. The September data will be published later this month.

The Fed last month raised its main PCE inflation forecast for this year to 3.7% from 3.0% in June.

Despite strong wage gains, high inflation is cutting into consumers’ purchasing power.

With the automotive shortage, economists have pushed for their GDP projections for the third quarter to slash at a 7% pace to a 1.3% annualized rate. The International Monetary Fund on Tuesday slashed its 2021 US growth forecast by a full percentage point to 6.0%, up from 7.0% in July. (Reporting by Lucia Mutikani Editing by Chizu Nomiyama)

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