Inflation is rearing its ugly head once again with a hotter than expected data release.
The Bureau of Labor Statistics published the new consumer price index report, in which inflation accelerated from 3.4% in August to 3.7% in September, more than the 3.6% expected.
That means inflation continued to outpace wage growth for the sixth straight month, as average hourly earnings growth has been sliding. September's year-over-year wage gain was the lowest since 2021, when the job market was still recovering from the short but deep pandemic recession.
Stocks edged lower after the report, as bond yields spiked. The 10-year US Treasury yield jumped 9 basis points to 5.31% after falling sharply on Tuesday.
On the month-over-month level, CPI increased 0.6%, matching the forecast and higher than the previous 0.4%.
Core CPI, which excludes volatile energy and food prices, increased 0.3% over the month again, just above the forecast of 0.2%, and increased 2.6% over the year, just above the forecast of 2.5% and up from the previous 2.4%.
"Ordinary Americans are losing purchasing power every month, even if the core inflation measure that strips out volatile food and fuel prices remains under control," said Nic Puckrin, markets expert and former Goldman Sachs analyst.
Energy prices experienced the largest increase since May, rising 20.4% from a year ago. More specifically, gas prices increased 34.2% over the year and a whopping 9.1% over just the month.
Meanwhile, food at home prices dipped slightly over the month while food away from home prices increased. Shelter prices were up 0.4% from the previous month and up 3.2% from a year ago.
ZipRecruiter economist Nicole Bachaud said even if the job market is doing fine now, with unemployment low and the economy still adding jobs, price increases can put pressure on what workers can afford.
"When we look at the majority of the US workforce, people who are middle- and lower-income households, higher costs in things like gas and groceries take up a larger share of their income," Bachaud said. "And so even though prices overall maybe only increased by 3.4% or so, it's a much higher share of their overall income that is going to these higher prices for gas and groceries and heating costs for their homes, especially as we come into the winter."
In September, the Fed made its first hike since 2023 to try to combat high inflation. CME FedWatch, which estimates probabilities of future Fed rate moves based on interest rate traders, showed as high as a roughly 50% chance of a hike at the upcoming meeting on October 27 and 28, far above the 20% chance before the hot inflation report.
Minutes from the Federal Open Market Committee meeting in September included concerns about stubborn inflation above the Fed's 2% target and the factors behind it, including the ongoing Iran war.
"Participants noted that inflation remained elevated and that they had not seen sufficient progress on lowering inflation in recent months," the minutes said. "They noted that ongoing geopolitical developments, which had pushed up prices for crude oil and refined fuel products, and surging AI-related investments were contributing to inflation pressures."
Tariffs are another concern; some participants noted that the chance of further increases could add pressure.
Americans going to the polls for the midterm elections on November 3 may be thinking about inflation and the higher cost of gas and other expenses. A Reuters/Ipsos poll from the summer found almost half of registered voters said the cost of living would be the most important factor in making their decision if the elections were held today.
Have you made any changes to your budget or financial goals, such as buying a home, due to the economy? Reach out to this reporter to share at [email protected].
