US inflation rose 3.7% in September — more than economists expected and still well above the Federal Reserve’s 2% target as the central bank weighs whether to further hike interest rates again by year’s end.
The reading for the Consumer Price Index — a closely-watched measure of inflation that tracks changes in the costs of everyday goods and services — matches the reading in August, and is slightly above the 3.6% advance economists expected, according to data by the Bureau of Labor Statistics released Thursday.
On a monthly basis, inflation slowed to 0.4% from 0.6% in August, partly because of lower pressure from energy prices.
However, core CPI — a number that excludes volatile food and energy prices and serves as a closely watched gauge among policymakers for long-term trends — held steady at 0.3% month to month and rose 4.1% from a year ago, in line with expectations.
Though September’s CPI is also a cooldown from inflation’s 9.1% peak in June 2022, it still remains well above the Fed’s 2% goal. Stock futures dropped ahead of the market opening as traders increased their bets of another rate hike to around 50%, up from 30% earlier this week.
The gasoline index’s 2.1% advance was also a large contributor to the CPI, the data showed, though the federal agency said shelter’s 0.2% increase accounted for over half of the increase.
Gasoline experienced an eye-watering 10.6% increase last month, when AAA figures showed that the average price for one gallon of gas was $3.85.
As of Thursday, one gallon of gas in the US averages $3.65, according to AAA.
While many investors had been willing to look past the volatile energy numbers, a surprisingly resilient labor market has some worried that inflation could be more stubborn.
September’s employment report revealed that the US economy added a whopping 336,000 jobs last month — an unexpected surge that contradicts the notion the Fed may tamp down its aggressive tightening regime.
The blowout number was nearly double the 170,000 jobs economists had expected, and also sharply higher than an upwardly revised 227,000 jobs added in August, according to fresh data released by the Bureau of Labor Statistics last week.
The news sent yields on US Treasury bonds to their highest levels in 16 years and send the Dow Jones Industrial Average into the red for 2023.
Since inflation hit a four-decade peak last summer, the central bank has worked to bring the stubborn figure down by hiking rates another 25 basis points to a 22-year high in August in hopes of an economic slowdown.
The benchmark federal funds rate currently sits between 5.25% and 5.5%. Last month, Fed officials unanimously decided to hold the record-high rate steady for the second time in six policy meetings so far this year.
But thanks to a strong labor market, the US economy has avoided a downturn, and even the Fed has said it’s no longer predicting the economy will slip into a recession by the end of the year.
Fed Chair Jerome Powell has said that central bankers will be taking a “data-dependent approach” moving forward, leaving more interest rate hikes before year’s end up in the air.
Markets were spooked ahead of the jobs report, falling more than 1% when the when the Labor Department released its Job Openings and Labor Turnover Summary, which showed job openings increased to 9.61 million in August — up from 8.9 million in July.
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