Core inflation rose to 5.1% in September, according to gauge watched by Fed
October 28, 2022: Core inflation ticked up in September as measured by the gauge favored by the Federal Reserve, a troubling sign that price pressures are not diminishing despite the central bank's aggressive efforts to tighten monetary policy.
Core inflation, which strips out energy and food prices, rose two-tenths of a percentage point to a 5.1% annual rate, as tracked by the personal consumption expenditures price index, which is more than forecast and higher than August’s 4.9%.
Headline inflation, meanwhile, stayed steady at 6.2%, according to the data released by the Bureau of Economic Analysis Friday morning.
The reading is bad news for the Biden administration, which has been hamstrung by the country’s historic inflation. Republicans are widely expected to seize control of the House and possibly the Senate in large part because households are paying more to afford necessities, and the GOP has used the higher prices as an indictment of Democratic leadership.
"With core inflation accelerating instead of moderating, this suggests that solid price growth has continued unabated (at least for now)," tweeted Chad Moutray, the chief economist for the National Association of Manufacturers.
The personal consumption expenditures index updated Friday is different from the consumer price index, which showed 8.2% inflation and 6.6% core inflation for September.
The uptick in core inflation comes even though the Fed has taken an increasingly heavy-handed approach to crushing inflation and bringing it down to its 2% target. It has quickly raised its target interest rate as it has become increasingly clear that inflation is stickier and more well-distributed across the economy than initially thought.
After holding its target, a very short-term rate known as the federal funds rate, near zero throughout the pandemic and the early recovery, the Fed has since raised it to between 3% and 3.25% over the course of this year.
Image above: Fed Interest Rate Target (Infogram)
Central bank officials are slated to meet next week to decide the Fed’s course of action in response to inflation. Prior to Friday’s report, investors assigned about a 90% chance of a 75-basis-point hike and a 10% chance of a milder hike, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
Rising rates dampen demand for goods and services and can cause the economy to slow or could knock it into a recession, a scenario that is looking increasingly likely. A decision to raise rates by 75 basis points once again would tilt the odds further toward the possibility of a recession.
Source: The Washington Examiner
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