Inflation came in at 3.7% for the year ending in September, remaining at the level it was the month before.
The data, reported on Thursday by the Bureau of Labor Statistics in an update to the consumer price index, is a bit of good news for President Joe Biden given that inflation didn’t further accelerate. Biden has been trying to reassure voters that he is curbing price pressures, and for the Federal Reserve, which has desperately worked to drive down inflation over the past year.
On a month-to-month basis, inflation fell to 0.4%, slightly more than projected.
“Core inflation,” which strips out volatile food and energy prices, fell to 4.1% for the year ending in September. Overall, core inflation has largely trended down this year, a good sign for the Fed.
INFLATION RISES TO 2.2% IN SEPTEMBER IN PRODUCER PRICE INDEX, DRIVEN BY ENERGY COSTS
Rising energy prices were a major driver of September’s inflation. The gasoline index ticked up 3% over the past 12 months while the index for electricity rose 2.6% over the last year.
The Fed has been hiking interest rates for more than a year, and inflation overall has meaningfully fallen. The central bank’s target rate is now 5.25% to 5.50%, with the most recent rate hike perhaps being the last of the Fed’s tightening cycle. Fed officials will pore over details of this latest report ahead of their next meeting later this month.
Soaring inflation has hurt households over the past couple of years and undercut support for Biden and his economic agenda. Republicans have used the higher prices as a tool to attack the administration and blamed inflation on spending legislation, particularly pandemic-era relief spending.
Meanwhile, many Democrats contend that the rash of pandemic-era federal spending isn’t the main driver of the rise in prices. They point out that inflation has exploded in other countries across the West. Democrats also argue the main inflationary pressures came not on the demand side but on the supply side.
The Biden administration has deemphasized the uptick in inflation experienced this summer (which was largely a product of higher gas prices). Rather, the White House has focused on other bright spots in the economy, including the country’s resilient job market and notably strong gross domestic product growth even despite the headwinds of higher interest rates.
The labor market added another 336,000 jobs in September — a number that was much better than economists had expected. Employment gains in July and August were also revised upward by a combined 119,000.
Additionally, the Bureau of Economic Analysis reported last week that the economy grew at a 2.1% annual rate in the second quarter of this year, near the 2.2% pace the quarter before — showing strong growth even in the face of the Fed’s rate hiking.
This latest inflation report comes a day after the Bureau of Economic Analysis released its September report on wholesale inflation. Inflation, as measured by the producer price index, rose by two-tenths of a percentage point to 2.2% for the year ending in September, the third such month of increases.
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The Fed will make its next decision regarding what to do with its interest rate target during a two-day meeting of the Federal Open Market Committee on Oct. 31 and Nov. 1.
An overwhelming majority of investors don’t expect the Fed to raise rates again at that meeting and a strong majority don’t anticipate any more rate hikes during as part of this current tightening cycle, according to futures contract prices for rates in the short-term market targeted by the Fed.
