U.S. Consumer Price Index for September Rises to 5.4%

-- CPI rose by 0.4% monthly and 4% on an annual basis in September, reported the Labor Department

-- The index rose by 0.2% and 4%, respectively, excluding food and energy.

The U.S. economy’s rebound from the pandemic has driven the consumer price index (CPI) to rise 5.4% in September on a year-over-year basis, as supply chains continue to remain strained.  

The core CPI, excluding food and energy, remained at its highest rate in a decade, rising sharply by 0.4% last month. This is the same CPI rate that was reported in June and July and slightly larger than that in August.

The core price index rose by 4% in September from a year earlier. On a monthly basis, the index for all items excluding food and energy rose 0.2% in September, after increasing 0.1% in August.

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MASKING INFLATION

The rising demand for used autos has been bolstered by the price rise in new vehicles due to the global semiconductor-chip shortage, bolstering the prices for the former. Used car prices have been at the center of much of the inflation pressures in recent months, until September when used car prices, fell 0.7% for the month, pulling the 12-month increase down to 24.4%.

The index for airline fares continued to fall sharply, decreasing 6.4% in September after falling 9.1% in August. 

The prices for the apparel index also decreased by 1.1.% in September, after rising 0.4% in the previous month while the index for transportation services fell 0.5% this month. Despite that, both sectors have been rising consistently and continued to show respective annual gains of 3.4% and 4.4%.

Senior U.S. economist at Morgan Stanley, Robert Rosener, told Wall Street Journal that the underlying inflationary pressures were masked by these monthly declines. He said, “The real story in the inflation data was the upside in the more cyclical and persistent components like rent. That tells us that there’s an important source of support that is likely to keep the inflation data firm in the months ahead and potentially beyond.” 

CAUSES FOR INFLATION

Rent makes up for a third of the CPI index. Tenant rent jumped 0.5% in September from August, the sharpest monthly rise since 2001.

Demand surged within the second quarter leading to an 11.9% increase in spending in the second quarter. Relaxed business restrictions, increasing COVID-19 vaccinations, widespread federal pandemic relief programs, and better household savings have encouraged Americans to spend and travel more.

Labor shortages have led to an increase in wages, causing companies to increase the prices of saleable goods. 

Prices of food at home rose 1.2%, while meat prices rose 3.3% in September and increased 12.6% annually. The index for food away from home rose 4.7% over the last year. Economists believe that the rise in restaurant prices is a sign of the passage of wage hikes to higher prices.

A rise in energy prices has also added to inflation. Gasoline prices rose by 1.2% in September, bringing the annual increase to 42.1%. Fuel oil shot up 3.9%, for a 42.6% year-over-year rise.

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DETERMINING INFLATION RATES

The Fed tracks many other measures to gauge whether the inflationary pressures will be temporary or long-lasting. A survey by the New York Fed stated that consumers’ median inflation expectation for three years from now rose to 4.2% in September, from 4% a month earlier, as reported by WSJ.

The same report also reported Fed Vice Chairman Richard Clarida’s statement who said Tuesday that the underlying rate of inflation in the U.S. economy is near the Fed’s 2% longer-run objective and, thus, that the recent surge would prove “largely transitory” once the supply bottlenecks clear. However, he said the Fed would raise rates if it saw evidence that households and businesses were beginning to expect higher inflation.