Consumer price growth picked up a bit in September to 0.4% month-on-month (m/m) from up 0.3% in August. As a result, headline inflation was 5.4% year-on-year (y/y), a tick above August’s pace.
Core inflation (ex. food and energy) also picked up to a 0.2% m/m increase, from 0.1% in August. That left the year-on-year rate of core inflation unchanged from August at 4.0%.
Both food (+0.9% m/m) and energy (+1.3% m/m) prices rose sharply on the month. Prices for energy goods (gasoline and fuel oil) have had steep monthly increases for four months now, and are up 41.7% versus a year ago. Food prices are up 4.6% y/y, with the largest increases seen for meats, poultry, fish and eggs.
Core prices were lifted by a 0.4% m/m increase in the heavily weighted shelter component. Rents rose 0.5% m/m, their largest monthly increase in over 20 years. Owners’ equivalent rent rose 0.4% m/m, its largest increase in five years. Other big increases included prices for new vehicles (+1.3% m/m) household furnishings and operations (+1.0% m/m) and car insurance (+2.1% m/m). Low inventories of new vehicles due to the semiconductor shortages have boosted new vehicle prices 8.7% over the past year, the fastest pace in over 40 years.
In contrast, airline fares continued to fall sharply (-6.4% m/m), as did apparel (-1.1% m/m) and used vehicle prices (-0.7% m/m).
The pandemic continued to drive big price swings in both directions in September. Many travel-related prices that were hot in the spring are trending down, however price pressures elsewhere, namely for shelter, are bubbling to the surface. Consumers are feeling the pinch from higher costs for many essentials, with the pace of inflation outstripping wage growth since the spring.
It is true that the comparison to low prices a year ago is boosting the annual inflation rate, however, we expect these base effects to be with us through the first half of 2022. Still, the monthly pace of core inflation has cooled to a more “normal” pace in aggregate, supporting the Fed’s view that the worst of the price spike is largely transitory. But, the more persistent categories like shelter, are expected to help keep inflation above target. We continue to expect the Fed to start tapering asset purchases very soon, and raise rates by the end of next year.