Soaring rent and food costs top U.S. consumer inflation

WASHINGTON, Oct 13 (Reuters) – U.S. consumer prices rose more than expected in September as rents surged to the largest since 1990 and food costs rose, reinforcing the Federal Reserve’s bid to raise interest rates by 75 basis points for a fourth time. Expect next month.

The Labor Department report on Thursday also showed that a measure of underlying inflation posted its biggest annual increase in 40 years, as consumers also paid more for health care. The data came on the heels of last week’s strong jobs report, which showed solid job growth in September and a drop in the unemployment rate to a pre-pandemic low of 3.5%.

“This is not one of the most aggressive tightening cycles the Fed wants to see in six months,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto.

The consumer price index rose 0.4% last month after rising 0.1% in August. Economists polled by Reuters had forecast the CPI would climb 0.2%.

Food prices rose 0.8% and household food costs rose 0.7%, with all six major grocery food groups rising. Owner-equivalent rent, a measure of how much a landlord pays in rent or earns from a rental property, surged 0.8%, the biggest gain since June 1990.

The sharp rise offset a 4.9% drop in gasoline prices. But gasoline prices may have bottomed out after the Organization of the Petroleum Exporting Countries and its allies decided last week to cut oil production. The war in Ukraine also poses an upside risk to food prices.

Stubbornly high inflation is well above the Fed’s 2% target, a challenge not only to the U.S. central bank but to the hopes of President Joe Biden and Democrats to retain control of Congress in next month’s election.

In the 12 months through September, the CPI rose 8.2% after rising 8.3% in August. The annual CPI peaked at 9.1% in June, the largest gain since November 1981.

Financial markets have almost fully priced in the prospect of a three-quarter percentage point hike from the Federal Reserve on Nov. 2. According to CME Group’s FedWatch tool, 1-2 policy meetings.

The Fed has raised its policy rate from near zero in March to its current range of 3.00% to 3.25%. The 20-21 meeting “expects near-term inflationary pressures to persist,” policymakers said in September, according to minutes released on Wednesday.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.

extensive pressure

Excluding the volatile food and energy components, the CPI rose 0.6% in September, in line with August’s gain. The so-called core CPI is largely driven by higher rental accommodation costs.

Pressure also came from health care costs, which rose 0.8% as consumers paid more for doctor visits.

New car prices rose 0.7% as supply remained tight. Motor vehicle insurance also costs more than home furnishing and operations, grooming, education and airfare. But clothing prices fell 0.3 percent, and used car and truck prices fell for a third straight month.

In the 12 months through September, the core CPI rose 6.6%, the largest gain since August 1982, after rising 6.3% in August.

Government data on Wednesday showed producer core commodity prices in September at the weakest reading in nearly 2-1/2 years. However, inflation from producers to consumers can take a while.

Some inflationary pressures come from a tight labor market. While a separate report from the Labor Department on Thursday showed an increase in the number of Americans filing new jobless claims last week, that may be because Hurricane Ian wreaked havoc in Florida and the Carolinas in late September.

Initial jobless claims rose by 9,000 to a seasonally adjusted 228,000 in the week ended October. 8. Economists forecast 225,000 applications in the latest week.

Unadjusted claims jumped 32,275 to 199,662. Florida claims surged by 10,368. New York also saw a sharp increase in filings, while Puerto Rico’s filings remained high after Hurricane Fiona.

Setting aside the distortions caused by the storm, the labor market remains tight. On the last day of August, there were 1.7 vacancies for every unemployed person, and layoffs were low.

The minutes of the Fed’s September meeting also showed that policymakers “expect the labor market supply and demand imbalance to gradually diminish” and that “the transition to a weaker labor market will be accompanied by an increase in the unemployment rate.”

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao

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