Inflation Isn’t Easing as CPI Hits 4-Decade High

Gasoline prices pulled back last month, but food and housing costs ticked higher; retail sales were flat.

October 14, 2022

ALEXANDRIA, Va.—Inflation hit a new four-decade high last month, showing that strong and broad price pressures are still happening, reports the Wall Street Journal. The core consumer-price index (CPI) was up 6.6% last month compared with September 2021—the largest increase since August 1982. Inflation was 8.2% in September.

Core CPI excludes energy and food prices. Investors and policymakers keep a close eye on this index as it’s a reflection of broad, underlying inflation and a predictor of future inflation. From August to September, core CPI rose 0.6%, the same as in August, and was up from 0.3% in July. Prices were up in the categories of housing, medical care, airline fares and other services.

This morning, the U.S. Commerce Department reported that retail sales were flat last month compared with a 0.4% August increase over July. U.S. retail and foodservices sales for September were $684 billion, essentially unchanged (+/-0.5%) from the prior month. Retail trade sales were down 0.1% (±0.4%) from August but up 7.8% (±0.7%) compared with last year. Retail sales at gas stations fell 1.4% last month but were 20.6% (±1.6%) higher compared with September 2021.

The Federal Reserve will likely raise interest rates another 0.75 percentage points at its meeting next month due to the high inflation number. Officials may also delay an anticipated slowdown in the pace of rate rises after that. They may even raise rates to even higher levels early next year than previously anticipated by policymakers and investors, reports the Journal.

“Inflation has built up a lot of momentum over the last year,” Bill Adams, chief economist at Comerica Bank, told the Journal. “That’s going to keep inflation higher than the Federal Reserve wants it for at least a couple more months—if not a couple more quarters.”

Mark Zandi of Moody’s Analytics is a little more optimistic. He told CNBC that he believes the U.S. will see major relief from inflation within six months.

“CPI, the consumer price inflation, will go from something that’s now about a low of over 8% year over year to something close to half that of 4%,” the firm’s chief economist told CNBC.

“The real hard part is going to go from 4% back to down to the Fed’s target. And on CPI, the high end of that target is probably 2.5%,” Zandi said. “So, that last 150 basis points—1.5 percentage points—that’s going to take a while because that goes to the inflation for services, which goes back to wages and the labor market. That has to cool off, and that’s going to take some time.”

Overall, Zandi believes the Federal Reserve’s policy tightening is putting the economy on the right track. He predicts high prices should recede enough to prevent a recession.

September’s inflation reading of 8.2% was lowered by cheaper gas prices but then partially offset by increased food costs; however, the reading was less than August’s 8.3% and 9.1% in June.

Housing costs rose the most since the early 1980s. Rental rates have been pushed up due to a strong labor market, and housing makes up two-fifths of the core index. Housing adjusts slowly because leases are usually determined on a yearly basis. That lag means housing costs could keep core CPI high for months, even though private-sector rent measures are declining.

Social Security benefits will increase by 8.7% next year, the Social Security Administration announced Thursday, which is the highest increase in four decades.

The increase will translate to a sizable income bump for about 70 million people, compared with workers who aren’t seeing wage growth that keeps pace with inflation, James Knightley, chief international economist at ING, told the Journal.

Knightley said the benefits increase could put slight pressure on inflation next year.

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