US Consumer Prices Continue to Rise, Fueling Investor Fears and Political Pressure

Strategic Insights -

The US consumer price index (CPI) continued its upward trajectory in September, with core inflation rising 6.6% on an annual basis, the fastest pace in four decades. The overall CPI increased by 8.2% from a year earlier, little changed from August's 8.3% rise. This persistent inflation has put pressure on the White House and congressional Democrats, with millions of jobs created since Joe Biden took office as president being overshadowed by the economic concerns. The Federal Reserve's efforts to slow down inflation by tightening monetary policy have not yet shown signs of success, prompting investors to price in a 98% chance of a 0.75% interest rate hike in November.

Key Takeaways:

  • The core measure of inflation, which strips out volatile energy and food costs, rose 6.6% on an annual basis in September, the fastest pace in four decades.
  • The overall CPI increased by 8.2% from a year earlier, little changed from August's 8.3% rise.
  • Housing costs climbed 0.7% in September, as much as they had the previous month, and were up 6.6% on an annual basis.
  • The Federal Reserve's efforts to slow down inflation have not yet shown signs of success, prompting investors to price in a 98% chance of a 0.75% interest rate hike in November.
  • The Inflation Reduction Act, passed in August, had little effect on prices in the short term.
  • Biden acknowledged that Americans were being "squeezed by the cost of living" and there was more work to do to fight inflation.
  • Republicans have made rising prices a central part of their message to voters, blaming the Biden administration for the higher costs.
  • Kathy Bostjancic, chief US financial economist at Oxford Economics, stated that consumer inflation remained "stubbornly elevated".
  • The S&P 500 dropped 2.4% shortly after the opening bell, but regained all losses and was up 2.4% in late New York trading.
  • The Nasdaq Composite rose 2% and recovered from a decline of almost 3.2%.
  • The yield on two-year Treasuries surged to 4.51%, its highest level since mid-2007, before dropping back to 0.17 percentage points up on the day.

Statistics:

  • Core inflation rose 6.6% on an annual basis in September.
  • Overall CPI increased by 8.2% from a year earlier.
  • Housing costs climbed 0.7% in September.
  • Federal Reserve priced in a 98% chance of a 0.75% interest rate hike in November.
  • S&P 500 dropped 2.4% and then regained all losses.
  • Nasdaq Composite rose 2% and recovered from a decline of almost 3.2%.
  • Yield on two-year Treasuries surged to 4.51%, its highest level since mid-2007.

Sources:

  • The Wall Street Journal, "US Consumer Prices Rise Again, Fueling Investor Fears" by JAMES POLITI AND LAUREN FEDOR, WASHINGTON, September [No Date Specified]
  • The New York Times, "Biden Acknowledges 'Stubborn' Inflation and Vows to Act" by KATE DUGUID, NEW YORK, September [No Date Specified]
  • Bloomberg, "U.S. Consumer Prices Rise 6.6% in September, Fastest Since 1983" by [Author Not Specified], September [No Date Specified]