- Inflation rate unexpectedly high in August, according to the September report.
- Overall prices increased by 8.3 percent over the previous year.
- The cost of food has risen by about 20% at the Los Angeles Regional Food Bank.
- Fuel costs have risen by 50% and will continue to be a significant operational expense.
Despite efforts by policymakers to limit rising prices that have put a strain on American families and businesses, inflation accelerated in September compared to the previous month, growing by 0.4 percent.
Prices increased 8.2 percent in September compared to the previous year, according to Bureau of Labor Statistics data released on Thursday, a slight slowdown from the summer peak but still at levels not seen in forty years.
A highly watched measure called “core inflation,” which excludes more volatile sectors like food and energy, also did well, increasing 0.6 percent over the course of the month and matching August’s pace.
The most recent inflation data was driven by rising costs for housing, healthcare, new cars, furniture, and education. Monthly price increases in each of those categories were only partially offset by a 4.9 percent drop in the gasoline index, despite the fact that prices have been steadily declining since their summer highs.
As in August, the food index increased by 0.8 percent in September. Fruits and vegetables rose by 1.6 percent, while bakery items and cereals increased by 0.9 percent. In the last year, food prices have risen by 11.2 percent.
September saw a steady decline in a few indexes, such as those for apparel and used cars and trucks.
Going into the midterm elections next month, inflation remains the biggest issue facing the economy, and Democrats in the White House and Congress have a battle. Families have suffered rising costs for practically everything for more than a year, including groceries, petrol, rent, and nearly everything else. Companies are finding it difficult to acquire enough labor, counter rising transportation costs, or circumvent enduring supply chain problems.
Fears that the Fed is overcorrecting as it fights inflation are growing.
Since no one is confident whether the Federal Reserve’s efforts to cool down prices and the economy overall through higher interest rates will trigger a recession, an even more uncertain future hangs over the harsh reality of today. Even President Joe Biden made an “unusual move” this week, as the Washington Post named it, by acknowledging that a recession might occur. Biden said in a CNN interview that aired Tuesday that he didn’t think there would be a recession, adding, “If there is, it’ll be a very slight recession.”
Despite gas prices steadily decreasing from their summer highs, the inflation rate was unexpectedly high in August, according to the September report. Overall prices increased by 8.3 percent over the previous year, and “core inflation,” a vital measurement that excludes volatile categories like food and energy, also exceeded economists’ expectations. That was interpreted as a particularly alarming indicator that inflation was solidifying even further within the economy and would be much harder to eliminate.
Federal Reserve officials have made it plain that despite experts’ rising concern that the Fed may be overcorrecting the economy, the Fed is far from reversing its aggressive rate hike campaign as prices are so high.
From the Fed’s perspective, you want to see a trend. Roberto Perli, head of global policy research at Piper Sandler and a former Fed economist, said that one number is not going to “give you a trend.” “The last several months have still been pretty high. I don’t think their views will change much.”
The Fed hikes interest rates to fight inflation, which can stifle demand by driving up the cost of a wide range of credit, from mortgages to auto loans. Rates have increased five times this year, most recently in September by three-quarters of a percentage point. In November and December, two additional significant increases are expected.
Financial markets have been shaken by recession fears both domestically and abroad, which has caused uncertainty about the economy. The Fed has made it clear that it will not ease up on rate hikes, and the main indexes have all plummeted as a result. Thursday’s inflation report may further depress stock prices. According to Fed officials, market volatility has no bearing on their intention to increase interest rates. However, a decline in stock prices may influence voters’ perceptions of the health of the economy and become a topic in next month’s midterm elections.
There is a downturn in the job market, and it might only be the beginning.
In the meantime, despite rising inflation and significant rate increases, some sectors of the economy have remained strong. Although the employment market is slowing down in some places, it has generally kept growing, with employers creating a respectable 263,000 jobs in September. Both personal incomes and consumer spending increased in August. Since its trough during the summer, when gasoline prices reached $5 per gallon, consumer confidence has grown.
Nevertheless, the Fed’s attempt to control inflation may backfire after it overestimated inflation for much of last year. Rate increases have a lag, and the economy doesn’t feel their full impact for several months. Policymakers can only really address issues with consumer demand, too. Their solutions do not tackle supply issues that have increased the price of new and used vehicles and homes, such as housing constraints and chip shortages.
Why the Fed increases interest rates?
Fed officials so far stated that failing to take an efficient approach to combat inflation poses a higher danger. However, they also admit that their tools are rudimentary and blunt, and that any fresh global shocks make averting a recession much more challenging.
In a Tuesday speech, Fed Vice Chair Lael Brainard said the Fed takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States, as well as in the reverse direction. “We are attentive to the risk of further adverse shocks—for instance, from Russia’s war against Ukraine, the pandemic, or China’s zero-covid policies, ” said Brainard.
Every week, there are more difficulties for the Fed and other central banks throughout the world. The International Monetary Fund has lowered its predictions for global growth downward, saying that “the worst is yet to come” and that “for many people, 2023 will feel like a recession.” Despite a coalition of oil-producing countries led by Saudi Arabia and Russia declaring last week that they will restrict oil production, a move that may soon send gas prices back up, the world economy is still being affected by Russia’s invasion of Ukraine. Wholesale prices went up more than expected in September, according to official data that was released on Wednesday.
The cost of food has accelerated by about 20% at the Los Angeles Regional Food Bank, with staples like chicken, turkey, pinto beans, and rice all taking account for a larger portion of the organization’s budget. Even as gas prices decline, fuel costs have risen by 50% and will continue to be a significant operational expense.
According to chief executive Michael Flood, 800,000 people used the food bank in September, a level that is generally consistent with the rest of the year. Flood said he often hears from families who are forced to skip meals because they are unable to pay their rent, buy medicine, or fill up the gas tank.
Flood also stated that they had thought 2022 would have been a bit of a quieter year, with the employment situation improving so much compared to 2020 and 2021. But really, it’s inflation that has kept this demand for food assistance at this really elevated level, added Flood.
Amber Flack, 45, of Pickerington, Ohio, was quoted by US Today as saying that while she has observed a decrease in petrol prices, it hasn’t caused her to resume her pre-pandemic spending patterns because her grocery bill keeps going up. Prior to the price hike, she and her family were only spending up to $600 per month on groceries. They now purchase goods like Coke, paper towels, and canned veggies in bulk, saving them more than $100 per month.
“I don’t love the need to buy in bulk to get a reasonable price, but it’s what I do now,” she is quoted as saying.
They reportedly drive less, stay within a five-mile radius of their homes, and haven’t taken a vacation since before the health crisis in order to save cash on gas. They used to go on at least two long vacations every year.