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Inflation fell in September as lower gasoline prices combined with other price pressures in areas such as housing to lighten consumers’ wallets, according to the consumer price index.
THE consumer price indexa key indicator of inflation, was up 2.4% last month compared to September 2023, according to the U.S. Bureau of Labor Statistics.
This figure is down from 2.5% in August, meaning price growth has slowed. This is also the smallest annual reading since February 2021.
The September CPI figure, however, was slightly higher than economists expected.
There have been some hot spots, such as an uptick in categories such as clothing, car insurance and groceries. Most, however, appear to be “one-off” increases, said Mark Zandi, chief economist at Moody’s.
“The inflation trend remains very positive,” Zandi said. “This month has been a failure and I don’t think it will last.”
The CPI measures how quickly prices rise or fall for a broad basket of goods and services, from auto repairs to peanut butter to living room furniture.
Inflation has fallen significantly from its peak of 9.1% during the pandemic in June 2022. It is approaching policymakers’ long-term annual target of close to 2%.
“We’ve made substantial improvements over the last two years,” said Sarah House, senior economist at Wells Fargo Economics.
That said, the slowdown in the labor market has worried economists more than inflation in recent months.
The US Federal Reserve, which had sharply raised interest rates to combat high inflation from the start of 2022, began cutting them last month to ease pressure on the job market and the economy.
Prices fall at the pump
Annual food inflation is ‘fairly moderate’
Frederick J. Brown | AFP | Getty Images
Food inflation over the past year has also been “pretty subdued,” House said.
Grocery prices have increased 1.3% since September 2023, according to the CPI.
Prices of agricultural raw materials – a “major cost” of food – have either fallen or appear “more stable,” House said. Examples of agricultural products include corn, wheat, coffee and soybeans.
Wage growth has slowed, reducing labor costs for transportation or food preparation, for example, House said. And grocery stores have offered more price incentives and promotions as consumers become more wary of their spending, she said.
That said, food inflation increased sharply on a monthly basis from August to September, rising from 0.4% to 0.4%.
“I don’t think this can continue in the future,” Zandi said.
Individual food products have their own supply and demand dynamics that can impact prices.
For example, egg prices increased more than 8% from August to September, and 40% since September 2023, largely due to another outbreak of bird flu, a contagious and deadly disease that affects chickens and other birds, economists said.
Housing inflation is falling
Housing accounts for the largest share of the CPI – and was the The main obstacle to returning inflation to its target level, economists believe.
“It’s a huge piece,” House said. “What happens there can really shake things up when it comes to headline inflation and core inflation.”
CPI housing inflation – which includes rent prices and an equivalent measure for homeowners – has gradually fallen but has remained stubbornly high. This has intrigued many economists, because real estate data shows that growth in average rents for new tenants has remained moderate for about two years.
In September, housing inflation slowed on a monthly basis, to 0.2% from 0.5% in August.
That’s one of the most encouraging signals from the latest CPI report, economists say.
“Housing inflation is now definitely subdued,” Zandi said. “And that’s a key part of the CPI.”
“Slower to back down”
Housing falls into the category of “services” of the economy.
Goods inflation has largely receded from pandemic-era nosebleed levels as messy supply-demand dynamics dissipate, economists said.
But services inflation “has still been slow to come down,” House said.
This is largely due to the shelter. But other categories also remain high.
For example, auto insurance prices increased 1.2% from August to September and about 16% since September 2023, according to the CPI.
Many services are “highly dependent” on prices in other sectors of the economy, House said. For example, insurers are now raise car insurance premiums following an earlier rise in the prices of new and used cars.
It usually takes some time for such dynamics to trickle down, on paper, to the services side, she said.
“Services inflation has been slower to peak on the upside and probably slower to decline on the downside,” she said.