An inflation gauge closely monitored by the Federal Reserve showed that price increases remained high in September amid strong consumer spending and strong economic growth.
A report from the U.S. Commerce Department on Friday showed that prices rose 0.4% from August to September, unchanged from the previous month. Inflation remained unchanged at 3.4% compared with 12 months ago.
Price increases in September exceeded the Fed’s 2% annual inflation target and further exacerbated rising costs for necessities such as rent, food and gas. The Fed is widely expected to keep key short-term interest rates unchanged at next week’s meeting.But its policymakers have Risk flagged Stronger growth could keep inflation elevated and require further interest rate hikes to calm it.
Since March 2022, the central bank has raised key interest rates from near zero to about 5.4% in a joint effort to curb inflation. Annual inflation has fallen from a peak of 9.1% in June last year.
On Thursday, the government reported that strong consumer spending pushed the economy to a robust annual growth rate of 4.9% in the July-September quarter, its best performance in nearly two years. Heavy spending by consumers often results in businesses charging higher prices. In Friday’s inflation report, the government also said consumer spending grew strongly by 0.7% last month.
Excluding volatile food and energy costs, “core” prices rose 0.3% from August to September, up from a 0.1% gain the previous month. However, compared with the same period last year, core inflation fell back to 3.7%, the lowest increase since May 2021 and down from 3.8% in August.
A key reason the Fed is likely to keep interest rates on hold through the end of the year is that core inflation rose 3.7% annually in September, in line with the central bank’s forecast for this season.
With core prices already at this level, Fed officials may believe they can “proceed with caution,” as Chairman Jerome Powell has said, and monitor developments in the economy over the coming months.
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