The rate of inflation rose by 0.4% in September, and remains well above its benchmark target of 2%, making the prospect of continued "jumbo" interest rate hikes more likely.
The year-over-year rate of inflation is now 8.2%, down from 8.3% in August, according to the Labor Department's Consumer Price Index, which measures how much Americans pay for certain goods and services.
That is slightly higher than many forecasts, including a Bloomberg survey of 51 economists that predicted a year-over-year inflation rate of about 8.1%.
With inflation, "any deceleration is welcome," says Mark Hamrick, senior economic analyst at Bankrate.com. However, this month's higher-than-expected inflation numbers are a "tremendously unwelcome negative surprise."
The prices for core goods continue to rise steadily, increasing by 0.6%, which is the same rate as the previous month. Core goods is a measure of all items except food and energy prices, which tend to be more volatile.
The rising cost of shelter, which is based on rent levels rather than home prices, continues to be a concern, as it accounts for nearly a third of consumers' costs, as weighted by the CPI.
Last month, the cost of shelter grew by 0.7%, and has risen 6.6% year over year. Prior to the pandemic, the yearly rise in shelter tended to hover somewhere between 2% and 4%.
Another factor in September's elevated inflation rate is food costs, which increased 0.8%, the same rate of increase as August.
Here's how much prices have increased over the past year for certain household goods and services, according to the Labor Department:
- Airline fares: 42.9%
- Gas: 18.2%
- Electricity: 15.5%
- Milk: 15.2%
- Food at home: 13%
- New vehicles: 9.4%
- Used cars and trucks: 7.2%
- Medical care services: 6.0%
- Apparel: 5.5%
- Postage: 3%
Despite the Federal Reserve implementing five consecutive interest rate increases, the last three "jumbo-sized" at 0.75 percentage point, inflation remains persistently high.
With the rate hikes, the Fed had expected inflation to decline faster than it actually has, Federal Reserve chairman Jerome Powell said in a press conference after the Fed's last rate increase in September. "That tells us we need to keep doing these," he said.
Powell also said that the central bank was "strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done."
While inflation remains stubbornly high, interest-rate sensitive parts of the economy like housing and the stock market have seen or are starting to see reduced prices, says Hamrick. However, it's going to take longer for consumers and businesses to be impacted by these increases in rates, he says.
With interest rate hikes, a lag effect on prices can take "6 to 12 months," Kansas City Fed President Esther George said in an interview last month. Since the first rate hike was seven months ago in March, it's possible the full impact of the Fed's shift in monetary policy is yet to be seen.
The federal funds rate, which indirectly determines the cost of loans, mortgages, auto financing and credit cards, is now in a range of 3% to 3.25%. It's expected to rise to 4.5% to 4.75% in 2023, according to a Bankrate survey of economists.
Interest rate hikes can slow down inflation by making the cost of borrowing more expensive. However, they can also reduce economic growth, which ultimately makes it harder for workers to find jobs.