Consumer Prices Rise at Blistering Pace

by Wall Street Rebel - Michael London | 10/13/2022 8:51 AM
Consumer Prices Rise at Blistering Pace

Inflation rates escalated quicker than predicted in September, terrible news for the Fed. The Consumer Price Index climbed 8.2 percent in the year through September, another persistently high number that worried the markets.


The most recent inflation statistics, which were issued on Thursday, indicated that consumer prices increased at a rate that was faster than anticipated. This is unfavorable information for the Federal Reserve, which is working to rein in the most rapid price rises in the last four decades.

Inflation as a whole increased by 8.2 percent in the year up to September, which was more than what experts whom Bloomberg recently polled anticipated it would be. However, this was a slight decrease from the 8.3 percent rise that occurred in the year up to August. The rate has remained at an alarmingly high level.

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After removing the effects of fuel and food costs, which have a history of being erratic and are frequently excluded from inflation readings in order to provide a clearer picture of the underlying trends, the so-called core inflation rate showed an increase of 6.6 percent. This was a larger increase than the one that economists had anticipated.

In spite of this, officials from the Fed and analysts working on Wall Street will be paying closer attention to the monthly numbers, particularly what occurred between August and September. The yearly figures are a reflection of what has occurred cumulatively over the course of the preceding 12 months; however, the monthly data provide a more accurate picture of how prices are changing in the present moment.

Those month-to-month figures provided grounds for concern. The result for overall inflation in September was substantially higher at 0.1 percent than it was the previous month's reading of 0.1 percent. The core index accomplished the same large rise as in the previous month, climbing 0.6 percent. The Fed will not be able to keep up with that pace.

As supply chains begin to mend, drops in used vehicle prices find their way to consumers, and consumer demand begins to draw back, many economists anticipate that inflation will begin to reduce over the next few months. However, they anticipate that the improvement will be slow since rents will continue to rise and the cost of other services would also rise. However, the journey has been rocky up to this point.

The Federal Reserve has set an inflation target of 2% per year on average, but it measures inflation using a different metric than other central banks do. This metric is the Personal Consumption Expenditures measure and won't be published until late October.

Because high inflation has persisted for almost a year and a half and has spread to a variety of commodities and services, central bankers will probably keep their primary emphasis on bringing down inflation.

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The Federal Reserve has already increased interest rates five times this year, and it is anticipated that policymakers will discuss raising them again by either a half point or three-quarters of a point at their forthcoming meeting. The newly uncovered data will support the argument for a larger pay raise.

The futures market for the S&P 500 had a precipitous decline, wiping out previous profits and leading to a decrease of more than 2 percent for the day. The reduction follows another dip that occurred on Wednesday, making it the sixth consecutive daily decline, which sent the index to a new low point for the year.

Yields on U.S. government bonds, which are used as benchmarks for determining interest rates on loans and are affected by the Fed's actions, increased significantly. The yield on the two-year Treasury note increased by 0.15 percentage points, which is a significant change for an asset whose movements are generally measured in tenths of a percentage point.

The data on the Consumer Price Index for September indicated that inflation had increased from the previous month, making this the second month in a row that inflation had not moderated.

When it comes to advising policymakers, and by extension, investors, on how much further interest rates will need to increase before inflation begins to regularly decline, the fresh data will be critical. Following additional upheaval in the British government bond markets this week, the research has taken on an even larger relevance for investors who are becoming increasingly concerned about the consequences that rising interest rates would have on the integrity of the global financial system.

The pricing in futures markets, which reflect where investors anticipate interest rates to be following the forthcoming meeting of the Fed, point to a rise of three-quarters of a percentage point as the most likely outcome. That would make for the fourth rise of that size so far this year, which was formerly a very unusual event.


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