U.S. Consumer Prices Outpace Forecast as Inflation Dogs Economy (Whoops! Did The Fed Do That?)

At least the Atlanta Fed’s President Raphael Bostic finally admitted that inflation isn’t as transitory as he previously believed. The Fed dumped trillions in liquidity into an economic system that was unprepared for it, and he is surprised that prices are going nuts?

Prices paid by U.S. consumers rose in September by more than forecast, resuming a faster pace of growth and underscoring the persistence of inflationary pressures in the economy.

The consumer price index increased 0.4% from August, according to Labor Department data released Wednesday. Compared with a year ago, the CPI rose 5.4%, matching the largest annual gain since 2008. Excluding the volatile food and energy components, so-called core inflation rose 0.2% from the prior month.

Price Pressures Persist

U.S. headline inflation rose more than forecast in September.

Source: Bureau of Labor Statistics, Bloomberg survey

The median estimate in a Bloomberg survey of economists called for a 0.3% monthly gain in the overall measure and a 0.2% advance in the core rate.

A combination of unprecedented shipping challenges, materials shortages, high commodities prices and rising wages have sharply driven up costs for producers. Many have passed some portion of those costs along to consumers, leading to more persistent inflation than many economists — including those at the Federal Reserve — had originally anticipated.

The pickup in price growth seen last month reflected higher food and shelter costs. Meantime, measures of used cars and trucks, apparel and airfares cooled.

U.S. equity futures fluctuated and Treasury yields were little changed following the report.

Hotels, Rents

The CPI data reflects crosscurrents in the economy. Hotel fares fell, reflecting the impact of the delta variant on travel, but inflation is broadening out beyond categories associated with reopening.

Higher home prices are now starting to filter through in the data. Rent of primary residence jumped 0.5%, the most since 2001, while a measure of homeowners’ equivalent rent posted the biggest gain in five years. Shelter costs, which are seen as a more structural component of the CPI and make up about a third of the overall index, could prove a more durable tailwind to inflation.

The report will likely reinforce the Fed’s inclination to soon start tapering its asset purchases, especially as the supply-chain challenges plaguing businesses show little signs of abating. Minutes from last month’s Federal Open Market Committee meeting — out Wednesday afternoon — will provide further insight on policy makers’ views toward progress on employment and inflation goals for tapering.

A New York Fed survey out Tuesday showed U.S. consumers’ expectations for inflation continued to rise in September, with 1-year and 3-year expectations accelerating to record highs.

American consumers are also experiencing higher prices for new vehicles and household furnishings and supplies, which increased by a record 1.3%, the report showed. And looking ahead, elevated energy prices are set to take an additional bite out of workers’ paychecks.

While we know that apartment rents are growing at 15.5% YoY, the CPI for Owner’s Equivalent Rent only rose by 3.2% YoY.

Powell: Whoops, did I do that?