Raymond James Economy & Policy
Eugenio J. Alemán, Ph.D. - Chief Economist
October 13, 2022
Bottom Line:
This was an overall bad inflation report, as inflation was 0.4% during September compared to market expectations of a 0.2% reading. Although the year-over-year rate was slightly lower, at 8.2% in September versus 8.3% in August, the strength in core prices is not a good omen for inflation going forward and assures that the Federal Reserve (Fed) will increase the federal funds rate by 75 basis points during its November FOMC meeting.
Summary:
The consumer price index (CPI) increased a more than expected 0.4% in September on a seasonally adjusted basis, according to the Bureau of Labor Statistics. Year-over-year, and not seasonally adjusted, the CPI increased 8.2%. Although energy prices declined by 2.1% during September, food prices increased by 0.8% with food at home inching up 0.7% and food away from home increasing 0.9%. Gasoline prices declined 4.7% during the month while the price of fuel oil declined 2.7%. Energy services prices increased 1.1% due to an increase of 0.4% in electricity prices and a 2.9% increase in natural gas prices. The all items less food and energy index increased a more than expected 0.6%, repeating the August increase and is up 6.6% compared to September of last year on a non-seasonally adjusted basis. The largest increase in the core services was allocated to shelter costs, up 0.7%, transportation services, up 1.9% and medical services, up 1.0%. Overall services prices less energy services increased 0.8%. Commodities less food and energy commodities were flat in September due to a 0.7% increase in new vehicles prices and a 1.1% decline in used cars and trucks.
Observations:
This was an overall bad inflation report as inflation was pushed up by a strong increase in core services prices as well as strong food prices. This report will keep the Fed in a defensive position and will ensure an increase of 75 basis points in the federal funds rate during the November Federal Open Market Committee meeting.
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