September CPI rise puts October Fed hike back in play

U.S. inflation accelerated in September, and not only at the pump. Consumer prices rose 3.7% from a year earlier, up from 3.4% in August, while interest-rate futures priced roughly even odds of an October increase after the release, according to Reuters.

Prices increased 0.6% over the month, matching economists’ expectations and topping August’s 0.4% gain. Core inflation, excluding food and energy, reached 2.6% annually, above the 2.5% economists polled by Reuters had forecast and August’s 2.4% reading. Monthly core inflation held at 0.3%.

Gasoline accounted for about half the monthly increase in headline CPI, but shelter prices also rose 0.4%, used cars and trucks increased 0.7%, and apparel gained 0.3%, CNBC reported. September’s report is the last CPI reading policymakers will receive before their October 27-28 meeting. The Fed uses the separate personal consumption expenditures price index for its 2% inflation target.

The central bank already raised its policy rate in September to a range of 3.75%-4%. Officials are watching for price pressures that could persist even if gasoline becomes cheaper, while weighing the risk that tightening too quickly could unduly slow the labor market, Reuters reported. Unemployment remains low, but job gains have cooled.

The Conference Board’s October 14 analysis said higher energy, transportation and producer costs were continuing to reach consumers. It still forecasts two more increases this year, in October and December, but judged recent Fed commentary to favor an October pause, citing weaker-than-expected September payrolls, downward revisions to PCE inflation and rising longer-term interest rates.