US inflationary pressures intensified further in September

Major U.S. markets fell sharply, with Dow Jones Industrial Average futures dropping from several hundred points to a 400-point drop in seconds. European markets also fell.

Thursday’s report represents the final U.S. inflation numbers ahead of the Nov. 8 midterm elections after a campaign season in which soaring prices fueled public anxiety, with many Republicans blaming it. on President Joe Biden and congressional Democrats.

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

As the election approaches, Americans are increasingly taking a dim view of their finances, according to a new survey from the Associated Press-NORC Center for Public Affairs Research. Around 46% of people now describe their personal financial situation as poor, up from 37% in March. This significant drop contrasts with the mostly flat readings that have endured through the pandemic.

The September inflation numbers are unlikely to alter the Fed’s plans to maintain an aggressive rate hike in an effort to keep inflation under control. The Fed has raised its short-term policy rate by 3 percentage points since March, the fastest rate of increase since the early 1980s. The increases are aimed at raising borrowing costs for mortgages, auto loans and business loans and curbing inflation by slowing the economy.

Minutes from the Fed’s last meeting in late September showed that many policymakers have yet to see any progress in their fight against inflation. Officials forecast that they would raise their benchmark rate by another 1.25 percentage points during their next two meetings in November and December. This would put the Fed’s key rate at its highest level in 14 years.

Along with lower gasoline prices, economists expect used car prices to reduce or at least limit inflation in the coming months. Wholesale used car prices have fallen for most of this year, although the declines have yet to show up in consumer inflation data. (Used vehicle prices had skyrocketed in 2021 after factory closures and supply chain shortages reduced production.)

Major retailers have also started offering early discounts for the holiday shopping season, after racking up excess inventory of clothing, furniture and other goods earlier this year. These price cuts may have lowered inflation in September or will do so in the months to come.

Walmart said it would offer deep discounts on items including toys, homewares, electronics and beauty. Target began rolling out vacation deals earlier this month.

Yet service prices – especially rents and housing costs – remain consistently high and will likely take much longer to come down. Health services, education, and even veterinary services continue to rise rapidly in price.

« Service price increases tend to be more persistent than goods price increases, » Federal Reserve Bank of Atlanta president Raphael Bostic noted in remarks last week.

Rising rents are a tricky issue for the Fed. Real-time data from websites such as ApartmentList suggests rents for new leases are starting to drop.

But the government measure tracks all rent payments – not just those on new leases – and most of them do not change from month to month. Economists say it could be a year or more before the drop in new leases trickles down to government data.