Food and rents boost US consumer inflation in September

Shoppers browse a supermarket while wearing masks to slow the spread of coronavirus disease (COVID-19) in northern St. Louis, Missouri, the United States, April 4, 2020. Image taken on April 4, 2020. REUTERS / Lawrence Bryant

  • Consumer price index rises 0.4% in September
  • Food and rents account for more than half of the increase
  • Core CPI up 0.2%; increases by 4.0% compared to the previous year

WASHINGTON, Oct. 13 (Reuters) – U.S. consumer prices rose solidly in September as Americans paid more for groceries, rents and a range of other goods, putting pressure on the Biden administration, dire supply chains that are holding back economic growth to solve.

With prices likely to continue to rise in the coming months after a recent spike in the cost of energy products, the Department of Labor report on Wednesday could verify Federal Reserve Chairman Jerome Powell’s repeated claim that high inflation is temporary. Powell and the White House blame supply chain bottlenecks for high inflation.

Supply chains have been glued together by robust demand as economies emerge from the COVID-19 pandemic. The coronavirus has created a global shortage of labor needed to produce raw materials and move goods from factories to consumers.

“Today’s number of rising food and house price inflation suggests mounting pressure on consumers,” said Seema Shah, chief strategist at Principal Global Investors. “Also, keep in mind that the recent surge in oil prices has not yet affected the numbers – it is yet to come, while renewed auto price hikes in the coming months are likely to drive inflation numbers higher as well.”

The consumer price index rose 0.4% last month after rising 0.3% in August. Food prices rose 0.9% after rising 0.4% in the previous month. The equivalent rent for owners’ primary residence that a homeowner would get by renting a home rose 0.4% after rising 0.3% in August.

Food and rents accounted for more than half of the September CPI surge. Economists polled by Reuters had forecast that headline CPI would rise 0.3%.

In the 12 months to September, the CPI rose 5.4% after rising 5.3% yoy in August.

Excluding the volatile food and energy components, the CPI rose 0.2% after rising 0.1% in August, the smallest increase in six months. In addition to rents, the so-called core CPI was increased by 1.3% due to an increase in the cost of new vehicles, which marked an increase of over 1% for the fifth month in a row.

A global shortage of semiconductors has forced automakers to cut production. The prices for household items and business have also risen in the past month. Consumers also paid more for car insurance.

But the prices of airline tickets and clothing, as well as used cars and trucks, all fell. The so-called core CPI rose last month by 4.0% compared to the previous year, in line with the increase in August.

HIGH ENERGY PRICES

Oil prices rose to their highest level in years on Monday as global demand recovered from the pandemic. Although Brent crude oil futures fell on Wednesday, prices remained above $ 80 a barrel. Natural gas prices have also risen sharply.

Expensive energy products would accelerate wage growth and put upward pressure on inflation. The government reported last week that the average hourly wage rose the most in seven months in September due to labor shortages.

With a record high in August and at least 10.4 million vacancies, wage inflation is likely to continue to rise.

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

“Companies confident that they will pass on input costs could turn higher energy prices into a driver of wider inflation.”

The September CPI report will have no impact on the Fed’s schedule of scaling back its massive monthly bond buying program. The US Federal Reserve signaled last month that it could curb its bond purchases as early as November.

Economists expect this announcement to be made at the November 2-3 political session.

“The central bank has already said that inflation has hit the threshold to slow down, but the labor market has not,” said Ryan Sweet, chief economist at Moody’s Analytics in West Chester, Pennsylvania. “The CPI could trigger a bond market reaction as it could alter market expectations for the timing of the Fed’s first rate hike, which we believe is still a long way off.”

The Fed’s preferred measure of inflation for its flexible 2% target, the core consumer spending index, rose 3.6% in the twelve months to August and rose by the same range for the third month in a row. The data for September will be released later this month.

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

Despite strong wage increases, high inflation is limiting consumer purchasing power.

This, together with the shortage of motor vehicles, led economists to reduce their estimates for the gross domestic product for the third quarter from up to 7% to only 1.3% annualized. The International Monetary Fund on Tuesday lowered its US growth forecast for 2021 by a whole percentage point from 7.0% in July to 6.0%. Continue reading

Reporting by Lucia Mutikani Editing by Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles.

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