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Inflation stayed uncomfortably high in September

U.S. inflation higher than expected
U.S. inflation higher than expected in September 02:29

Inflation continued to wallop Americans in September, with a key measure of price increases hitting a 40-year high last month, the Labor Department reported on Thursday. 

Core inflation, which tracks average price increases except for volatile food and energy costs, rose 6.6% over the past 12 months — its highest rate since 1982.

More troubling, the monthly price change showed that cost pressures are building. Overall prices increased 0.4% in September, a faster rate than in August, while core inflation rose at 0.6%, the same growth rate as the previous month. 

"Month on month, core inflation rose at one of the fastest rates so far this year, by 0.6%. In year on year terms, it also picked up, to 6.6%," Cailin Birch, global economist at Economist Intelligence Unit, said in a research note.

The rising cost of housing and health care drove the price increases, the government reported. The price of used vehicles and apparel fell.

"The big sources of inflation included food, shelter, transportation services and medical care services. The owners' equivalent rent index increased 0.8% over the month, the largest monthly increase in that index since June 1990," Wall Street analyst Adam Crisafulli of Vital Knowledge said in a note.

Overall prices, including food and fuel, rose 8.2% last month from a year ago, showing prices continue to decelerate, albeit slowly. The CPI rose 8.5% and 8.3% in July and August, respectively, from the year-ago period.

The Federal Reserve has sharply increased interest rates as it tries to curb the hottest inflation in decades, a process that has driven mortgage rates to a 16-year high and helped bring the stock market to its lowest level since 2020.

Stocks dropped after Thursday's report, with the S&P 500 down 1.2% and the Dow lower by 0.7% in early trading, as investors read the inflation figures to mean more interest-rate increases are on the way.

The higher-than-expected September figure "virtually guarantees the Fed will hike 75 basis points next month, and at least 50 in December," Robert Frick, corporate economist at Navy Federal Credit Union, said in a note. "And we need to brace for more bad news in October and November, as rising oil prices are likely to swing again from reducing to increasing inflation."

Many Americans continue to struggle with the surging cost of living. Some 46% of people said their personal financial situation was poor in a recent poll by The Associated Press-NORC Center for Public Affairs Research, up from 37% in March. Just 36% of people approve of President Biden's handling of the economy, while 63% disapprove, the poll found.

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