Inflation accelerated in September, raising prices for consumers.

Inflation accelerated in September, raising prices for consumers. Credit: AP/Rogelio V. Solis

WASHINGTON — Inflation in the United States accelerated in September, with the cost of housing and other necessities intensifying pressure on households, wiping out pay gains and ensuring that the Federal Reserve will keep raising interest rates aggressively.

Consumer prices, excluding volatile food and energy costs, jumped 6.6% in September from a year ago — the fastest such pace in four decades. And on a month-to-month basis, such “core” prices soared 0.6% for a second straight time, defying expectations for a slowdown and signaling that the Fed's multiple rate hikes have yet to ease inflation pressures. Core prices typically provide a clearer picture of underlying price trends.

Overall prices rose 8.2% in September compared with a year earlier, down slightly from August, the government said Thursday in its monthly inflation report. But from August to September, prices increased 0.4%, faster than the July-to-August increase. Though cheaper gas helped slow the broadest measure of inflation, costlier food, medical care and housing pointed to the breadth of price pressures across the economy.

“We still have no evidence that inflation is decelerating,” said Matthew Luzzetti, an economist at Deutsche Bank. “Let alone the clear and convincing evidence that the Fed is looking for.”

Thursday’s report represents the final U.S. inflation figures to be released before the Nov. 8 midterm elections amid a campaign season in which spiking prices have fueled public anxiety, with many Republicans casting blame on President Joe Biden and congressional Democrats.

Speaking Thursday in Los Angeles, Biden acknowledged the pain that inflation is causing many people, while suggesting that the latest figures showed “some progress."

“Americans are squeezed by the cost of living,” the president said. “It’s been true for years, and folks don’t need to read a report to tell them they’re being squeezed. Fighting this battle every day is a key reason why I ran for president.”

Even with widespread price spikes, the September data showed that the prices for many physical goods, including clothing, used cars, furniture and appliances, dropped last month. A key factor is that supply chain snarls have eased, and many large retailers such as Walmart and Target have discounted some items to clear excess stockpiles.

Yet the price drops were not as steep as many economists expected, and they were more than offset by sharp increases in services-related prices, including health care, auto repair and housing.

A measure of housing costs jumped 0.8% in September, the largest such increase in 32 years. The Fed's rate hikes have led to much higher mortgage rates and caused home sales to tumble and prices to falter. But declining house prices will take time to feed through into the government's measure.

In the metropolitan area, consumer prices rose 6.2% in September, compared with a year earlier on the higher cost of energy and groceries, among others. It was the smallest year-over-year increase since March, according to William J. Sibley, regional commissioner in the Manhattan office of the federal Bureau of Labor Statistics.

The cost of gasoline rose 14.1% last month, compared with September 2021. Natural gas and electricity prices were up 29.1% and 10.1%, respectively. The cost of groceries rose 10%, year over year, with the biggest increases for cereal, baked goods and dairy products.

John A. Rizzo, an economist and Stony Brook University professor, said it was little comfort to Long Islanders that the metro-area price index grew more slowly than the national index.

“Rising energy prices are likely to persist,” he said in an interview. “We really can’t expect an improvement in inflation.”

The prolonged rise in prices coupled with recurring interest rate hikes continue to pose challenges to Long Island businesses, said Matt Cohen, president and CEO of the Long Island Association business group. He said local companies are "closely managing their cash flow and financial projections to keep their customers and remain competitive.” 

Rizzo and others predicted the Fed would again raise interest rates, which will slow economic growth.

Nationally, the cost of health insurance jumped 2.1% from August to September and more than 28% over the past 12 months — a record one-year increase. The cost of auto repairs surged 15% in September from a year earlier, also a record high. The supply chains of many car parts are still disrupted.

“The primary driver of inflation has rotated away from goods prices and to services,” said Eric Winograd, U.S. economist at AB. “Services inflation is heavily influenced by wages, and so it is going to take a meaningful weakening of the labor market to bring inflation to heel.”

Inflation in services also being is fueled by steady consumer demand. Though there are signs that lower-income Americans are cutting back, higher-income households still appear willing to spend on travel, restaurant meals and services like veterinary care.

Both Delta and American Airlines, for example, reported strong revenue growth this week, driven by increased demand from travelers. Airfares rose a brisk 0.8% from August to September.

Inflation has swollen families’ grocery bills, rents and utility costs, among other expenses, causing hardships for many and deepening pessimism about the economy despite strong job growth and historically low unemployment.

Kasondra Mathews is among those feeling the squeeze. Mathews, 50, who lives near Denver, has been working overtime as a nurse’s assistant to keep up with her rent and grocery bills. Her rent has increased roughly 5% a year for the past several years, shrinking her budget for other items.

With her daughter a senior in high school and headed soon to college, Mathews has found ways for her to apply to her preferred schools for free. She's also forgoing any visits to a college to avoid the travel expense.

“We didn’t get to do college tours, because we can’t afford it,” she said. “I couldn’t do the things you might want to do for your senior.”

The September inflation numbers aren’t likely to change the Fed’s plans to keep hiking rates aggressively in an effort to wrest inflation under control. The Fed has boosted its key short-term rate by 3 percentage points since March, the fastest pace of hikes since the early 1980s. Those increases are intended to raise borrowing costs for mortgages, auto loans and business loans and cool inflation by slowing the economy.

Minutes from the Fed’s most recent meeting in late September showed that many policymakers have yet to see any progress in their fight against inflation. The officials projected that they would raise their benchmark rate by an additional 1.25 percentage points over their next two meetings in November and December. Doing so would put the Fed’s key rate at its highest level in 14 years.

Along with lower gas prices, economists expect the prices of used cars to reduce or at least restrain inflation in the coming months. Wholesale used car prices have dropped for most of this year, though the declines have yet to show up in consumer inflation data. (Used vehicle prices had soared in 2021 after factory shutdowns and supply chain shortages reduced production.)

Large retailers, too, have started offering early discounts for the holiday shopping season, after having amassed excess stockpiles of clothes, furniture and other goods earlier this year. Those price cuts might have lowered inflation in September or will do so in the coming months.

Walmart has said it will offer steep discounts on such items as toys, home goods, electronics and beauty. Target began offering holiday deals earlier this month.

Yet prices for services — particularly rents and housing costs — are remaining persistently high and will likely take much longer to come down. Health care services, education and even veterinary services are still rising rapidly in price.

“Services price increases tend to be more persistent than increases in the prices of goods,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, noted in remarks last week.

Rising rental costs are a tricky issue for the Fed. Real-time data from websites such as Apartment List suggest that rents on new leases are starting to decline.

But the government’s measure tracks all rent payments — not just those for new leases — and most of them don’t change from month to month. Economists say it could be a year or longer before the declines in new leases feed through to government data.

With James T. Madore

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