Continued inflation will pressure Fed to keep raising rates

WASHINGTON — Inflation in the United States continued apace in September, with the cost of housing and other necessities intensifying pressure on households, wiping out pay gains and ensuring that the Federal Reserve will keep raising interest rates aggressively.

Consumer prices, excluding volatile food and energy costs, jumped 6.6% in September from a year ago — the fastest such pace in four decades. And on a month-to-month basis, such “core” prices soared 0.6% for a second straight time, defying expectations for a slowdown and signaling that the Fed’s multiple rate hikes have yet to ease inflation pressures.

Overall prices rose 8.2% in September compared with a year earlier, down slightly from August, the government said Thursday in its monthly inflation report.  Though cheaper gas helped slow the broadest measure of inflation, costlier food, medical care and housing pointed to the breadth of price pressures across the economy.

“We still have no evidence that inflation is decelerating,” said Matthew Luzzetti, an economist at Deutsche Bank. “Let alone the clear and convincing evidence that the Fed is looking for.”

Stock markets fell sharply in early trading, but then rebounded dramatically. The Dow Jones climbed  827 points, or about 2.8% by the close.

The report marks the final U.S. inflation figures before the Nov. 8 midterm elections.

Speaking in Los Angeles, Biden acknowledged the pain that inflation is causing many people, while suggesting that the latest figures showed “some progress.”

“Americans are squeezed by the cost of living,” Biden said. “It’s been true for years, and folks don’t need to read a report to tell them they’re being squeezed. Fighting this battle every day is a key reason why I ran for president.”

Even with widespread price spikes, the data showed the costs of many physical goods, including clothing, used cars, furniture, and appliances, dropped last month. A key factor is that supply chain snarls have eased, and many large retailers such as WalMart and Target are discounting items to clear stockpiles.

But the price drops were not as steep as many expected and were more than offset by increases in services prices, including health care, auto repair and housing.

A measure of housing costs jumped 0.8% in September, the largest such increase in 32 years.

The Fed’s rate hikes have led to much higher mortgage rates — the average on a 30-year fixed home loan is nearly 7% — and caused home sales to tumble.

“The primary driver of inflation has rotated away from goods prices and to services,” said Eric Winograd, U.S. economist at AB. “Services inflation is heavily influenced by wages, and so it is going to take a meaningful weakening of the labor market to bring inflation to heel.”