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U.S. consumer prices increased more than expected in September as rents surged by the most since 1990 and the cost of food also rose, reinforcing expectations the Federal Reserve will deliver a fourth straight 75-basis-point interest rate hike next month. The data followed on the heels of last week's strong employment report, which showed solid job gains in September and a drop in the unemployment rate to a pre-pandemic low of 3.5%.
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While some prices are starting to ease, costs remain high on an annual basis: Gasoline, down 4.9% in September, is up 18.2% year-over-year; used cars and trucks, down 1.1% in September are up 7.2% annually; and furniture, down 0.1% in September is up 10.1% year over year.
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The stock market initially recoiled at the report – Dow futures tumbled more than 400 points, or 1.5%, after the report was released, S&P 500 futures fell 1.8%, and Nasdaq futures were 2.6% lower – but the market had recovered in late morning trading.
Why it matters
The Fed has raised its benchmark interest rate five times this year as part of a plan to cool the economy by squashing demand from consumers and businesses. But it takes time for monetary policy to have a pronounced effect on inflation and the economy — typically 12 to 18 months, said Cailin Birch, global economist at Economist Intelligence Unit. Stubbornly high inflation, which is running way above the Fed's 2% target, is not only a challenge for the US central bank, but also a blow to President Joe Biden and Democrats' hopes of retaining control of Congress in elections next month.
