Unexpected Spike Spells Out DISASTER

Reuters reports that U.S consumer prices increased more than expected in September. This is underlying inflation pressures continued to build up, reinforcing expectations that the Federal Reserve will deliver a fourth 75-basis points interest rate hike next month.

The Labor Department said that the consumer price index rose 0.4% last month after gaining 0.1% in August. Economists polled by Reuters had forecast the CPI climbing by 0.2%.

In the 12 months leading up to September, the CPI increased 8.2% after rising 8.3% in August. The annual CPI peaked in June at 9.1%, which was the biggest advance since November 1981.

Despite the oil costs going down and supply chain issues being fixed,  inflation is running way above the Fed’s 2% target.

Stubbornly high inflation and a tight labor market allow the U.S. central bank to maintain its aggressive monetary policy stance. The government last week reported solid job growth in September. However, the unemployment rate fell back to a pre-pandemic low of 3.5% from 3.7% in August.

Since March the Fed has hiked its policy rate from near zero to the current range of 3.00% to 3.25%.

Some of the inflation pressures are coming from the tight labor market.

A report from the Labor Department showed the number of Americans filing new claims for unemployment benefits has increased. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 228,000 for the week ending on Oct. 8.

Economists had forecast 225,000 applications for that time period. The labor market remains tight. There were 1.7 job openings for every unemployed person on the last day of August, and layoffs also remain low.


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