Inflation Sits at 8.2% as Core Prices Hit Four-Decade High

So-called core CPI, which excludes volatile energy and food prices, gained 6.6% in September from a year earlier, accelerating from 6.3% in August and marking the biggest increase since August 1982. 

On a monthly basis, the core index rose 0.6% in September, the same as in August. Investors and policy makers follow core inflation closely as a reflection of broad, underlying inflation and as a predictor of future inflation.

The retreat of overall inflation from the June high came as gasoline prices cooled. But prices for housing, medical care, food and other items have continued to increase, threatening to keep inflation higher for longer.

“Inflation has built up a lot of momentum over the last year,” said

Bill Adams,

chief economist at Comerica Bank. “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.”

The Social Security Administration will separately announce Thursday inflation-based adjustments to Social Security benefits that seniors and other Americans receive. The boost in monthly benefits is expected to be the highest in four decades.

Inflation accelerated last year as the U.S. economy recovered from the Covid-19 pandemic. Prices rose as strong consumer demand—stoked by lower interest rates and government stimulus—collided with constrained supply chains and pandemic-related shortages. Russia’s invasion of Ukraine this year further spurred inflation worldwide, hitting food, energy and other commodity prices.

The Fed is aggressively raising interest rates to slow price increases. Officials at the Fed’s September policy meeting expressed concern about the persistence of high inflation, minutes published this week showed.

Officials last month raised the benchmark federal-funds rate by 0.75 percentage point—their fifth increase since March—bringing it to a range between 3% and 3.25%, the most rapid pace of rate increases since the early 1980s.

Fed Chairman

Jerome Powell

said in late September that the central bank would continue to lift interest rates and keep them high until it is certain that inflation has been tamed.

Meanwhile, global developments have added uncertainty to the task.

“You don’t get inflation like this without a lot of things going wrong,” said

Michael Gapen,

an economist at Bank of America. “Maybe the bumper sticker is: It’s not just up to the Fed to bring inflation down. We expect help from other areas including global commodity markets and a reversal in the relative shock to core goods prices.”

While gasoline prices fell in September, they have crept up as the Organization of the Petroleum Exporting Countries and its Russia-led allies announced production cuts. The average price of regular unleaded gasoline was $3.92 a gallon, still more than $1 a gallon cheaper than in mid-June, according to AAA/OPIS.

There are signs that pressures created by supply-chain disruptions could be subsiding, which should help slow price increases for goods. The producer-price index for core goods held steady in September from a month earlier, the first month without an increase since May 2020. A deceleration in price gains for autos, furniture and other goods is key to putting inflation on a steady downtrend, Mr. Gapen said.

Food prices have continued to climb. Producer food prices jumped 1.2% in September from August, after rising 0.1% during the prior month.

Kristin Curreri of Arlington, Mass., said high inflation is making it hard to manage finances since she got married in May 2021. She and her husband expanded their wedding guest list and increased their budget after Covid-related restrictions eased, leading to a credit-card balance.

“Inflation wasn’t something people were paying attention to at that point,” she said. “This was the first gathering people got to go to in a year, so I thought, ‘Well, let’s pay a little more and carry a little debt that I’ll then pay off.’”

Then prices started shooting up, with higher food costs particularly punishing. While Ms. Curreri has cut back on more-expensive items including organic chicken, she estimates that her overall grocery bill has gone up around 30% since 2021.

“With the cost of living having increased so much, I’ve basically been carrying a rolling four grand that I just can’t get rid of,” she said, referring to her credit-card balance.

The U.S. growth outlook has dimmed, and the prospect of higher interest rates is stoking fears of a recession. Gross domestic product, a broad measure of spending on goods and services, fell at an annual rate of 1.1% in the first half of the year, adjusted for inflation and seasonality.

Nearly all Fed officials expect to raise their benchmark interest rate to between 4% and 4.5% by the end of this year, according to September projections.

Some companies are growing less confident in their pricing power as the economic outlook sours.

The lowest share of small businesses since January 2021 plans to raise prices in the next three months, on a net basis, according to a survey conducted by the National Federation of Independent Business, a trade association. That suggests core inflation will fall by as much as half in the next six months, said

James Knightley,

chief international economist at ING.

“We’re seeing evidence of inventories rising and a bit of a slowdown in demand,” he said. “And there’s a sense in corporate America that we’re heading into a weaker period and pricing power isn’t as robust as it had been.”

Write to Gwynn Guilford at [email protected]

So-called core CPI, which excludes volatile energy and food prices, gained 6.6% in September from a year earlier, accelerating from 6.3% in August and marking the biggest increase since August 1982. 

On a monthly basis, the core index rose 0.6% in September, the same as in August. Investors and policy makers follow core inflation closely as a reflection of broad, underlying inflation and as a predictor of future inflation.

The retreat of overall inflation from the June high came as gasoline prices cooled. But prices for housing, medical care, food and other items have continued to increase, threatening to keep inflation higher for longer.

“Inflation has built up a lot of momentum over the last year,” said

Bill Adams,

chief economist at Comerica Bank. “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.”

The Social Security Administration will separately announce Thursday inflation-based adjustments to Social Security benefits that seniors and other Americans receive. The boost in monthly benefits is expected to be the highest in four decades.

Inflation accelerated last year as the U.S. economy recovered from the Covid-19 pandemic. Prices rose as strong consumer demand—stoked by lower interest rates and government stimulus—collided with constrained supply chains and pandemic-related shortages. Russia’s invasion of Ukraine this year further spurred inflation worldwide, hitting food, energy and other commodity prices.

The Fed is aggressively raising interest rates to slow price increases. Officials at the Fed’s September policy meeting expressed concern about the persistence of high inflation, minutes published this week showed.

Officials last month raised the benchmark federal-funds rate by 0.75 percentage point—their fifth increase since March—bringing it to a range between 3% and 3.25%, the most rapid pace of rate increases since the early 1980s.

Fed Chairman

Jerome Powell

said in late September that the central bank would continue to lift interest rates and keep them high until it is certain that inflation has been tamed.

Meanwhile, global developments have added uncertainty to the task.

“You don’t get inflation like this without a lot of things going wrong,” said

Michael Gapen,

an economist at Bank of America. “Maybe the bumper sticker is: It’s not just up to the Fed to bring inflation down. We expect help from other areas including global commodity markets and a reversal in the relative shock to core goods prices.”

While gasoline prices fell in September, they have crept up as the Organization of the Petroleum Exporting Countries and its Russia-led allies announced production cuts. The average price of regular unleaded gasoline was $3.92 a gallon, still more than $1 a gallon cheaper than in mid-June, according to AAA/OPIS.

There are signs that pressures created by supply-chain disruptions could be subsiding, which should help slow price increases for goods. The producer-price index for core goods held steady in September from a month earlier, the first month without an increase since May 2020. A deceleration in price gains for autos, furniture and other goods is key to putting inflation on a steady downtrend, Mr. Gapen said.

Food prices have continued to climb. Producer food prices jumped 1.2% in September from August, after rising 0.1% during the prior month.

Kristin Curreri of Arlington, Mass., said high inflation is making it hard to manage finances since she got married in May 2021. She and her husband expanded their wedding guest list and increased their budget after Covid-related restrictions eased, leading to a credit-card balance.

“Inflation wasn’t something people were paying attention to at that point,” she said. “This was the first gathering people got to go to in a year, so I thought, ‘Well, let’s pay a little more and carry a little debt that I’ll then pay off.’”

Then prices started shooting up, with higher food costs particularly punishing. While Ms. Curreri has cut back on more-expensive items including organic chicken, she estimates that her overall grocery bill has gone up around 30% since 2021.

“With the cost of living having increased so much, I’ve basically been carrying a rolling four grand that I just can’t get rid of,” she said, referring to her credit-card balance.

The U.S. growth outlook has dimmed, and the prospect of higher interest rates is stoking fears of a recession. Gross domestic product, a broad measure of spending on goods and services, fell at an annual rate of 1.1% in the first half of the year, adjusted for inflation and seasonality.

Nearly all Fed officials expect to raise their benchmark interest rate to between 4% and 4.5% by the end of this year, according to September projections.

Some companies are growing less confident in their pricing power as the economic outlook sours.

The lowest share of small businesses since January 2021 plans to raise prices in the next three months, on a net basis, according to a survey conducted by the National Federation of Independent Business, a trade association. That suggests core inflation will fall by as much as half in the next six months, said

James Knightley,

chief international economist at ING.

“We’re seeing evidence of inventories rising and a bit of a slowdown in demand,” he said. “And there’s a sense in corporate America that we’re heading into a weaker period and pricing power isn’t as robust as it had been.”

Write to Gwynn Guilford at [email protected]