September Inflation Rate Hotter than Expected, Grew Double Forecast Expected

According to a report from the Bureau of Labor Statistics, inflation came in hotter than expected in September. As measured by wholesale producer prices, the inflation level was 8.5% in the most recent measure. 

Although the year-over-year inflation rate was down from 8.7% in August, the number was still higher than forecasters expected. The producer price index grew by 0.4% month-to-month, double what forecasters expected

When looking at the past number of months, forecasters predicted that inflation reached its peak in April at 11.5% and may be on its way down. It held above 10% throughout the summer but has now slowly decreased for the past three months. Traditional trends show that producer prices eventually make their way down to households.

According to economists with Oxford Economics, “Producer prices made steady progress at the start of Q3, but September’s reading is a reminder that price pressures remain elevated and volatile, particularly for food and gas given the ongoing war in Ukraine and ongoing supply chain disruptions.”

Report precedes upcoming Consumer Price Index report

The Bureau of Labor Statistics’ most recent report was issued before the upcoming consumer price index report (CPI), seen by many economists as the key barometer of inflation in the U.S. The September reading will increase the stakes for Democrats and President Joe Biden, as it will be the last before the November midterm elections

The forecast consensus is that inflation will have slowed two-tenths of a percentage point in September, to 8.1% in September. However, economists also expect that “core inflation,” or inflation with volatile categories including energy and food, are taken out, accelerated two-tenths of a percent to 6.5%

The inflation report for August showed prices coming in higher than forecasters had predicted, sending the markets spiraling as investors expressed fear that the Federal Reserve would continue to hike interest rates to try to drive down inflation aggressively. 

The Fed has continued to raise rates rapidly in an attempt to combat inflation. Over the past four months, its interest rate target has risen by 2.25%, the most aggressive rate hike since the inflation of the late 70s and early 80s.

“In a world of instability and surprises, it’s hard to know exactly how much higher interest rates will have to be, causing what Chairman Powell has warned will include pain along the way. It’s already led to a bear market in stocks and a deep freeze for the housing market,” Mark Hamrick, senior economic analyst for Bankrate, said.