US consumer inflation accelerated in September, despite aggressive action by the Federal Reserve to tamp it down

New York (AFP) - Inflation kept its hold on the US economy in September, government data showed Thursday, with a higher-than-expected jump adding to headwinds facing President Joe Biden’s Democrats shortly before midterm elections.

Thursday’s consumer price report – the last before the November 8 vote to decide control of Congress – showed US prices rose 0.4 percent in September compared to August, twice the 0.2 percent projected by analysts, with increases for food, housing and medical care weighing on consumers.

While the annual rate of inflation slowed slightly to 8.2 percent from 8.3 percent, according to the Bureau of Labor Statistics data, analysts expressed increasing concerns that pricing pressures have become more ingrained in the economy.

Biden touted “some progress in the fight” but admitted that “prices are still too high” and that “we have more work to do” – as the disappointing data set the stage for more aggressive rate hikes by the US Federal Reserve.

Calling the price of gasoline “still too high,” Biden added that he would have “more to say about that next week.”

The Fed has been walking a tightrope for months in trying to wrestle inflation down from the current 40-year highs – without triggering a damaging recession in the world’s largest economy.

In an interview with CNN on Tuesday, Biden acknowledged the possibility of a mild recession, but said he didn’t think it was likely.

Thursday’s data showed core inflation, which strips out volatile energy and food prices, rose 0.6 percent in September, more than the 0.4 percent projected by analysts. The benchmark rose 6.6 percent for the year, a four-decade peak.

Other items that saw price increases in September included motor vehicle insurance, household furnishings and education. Items with decreases included used cars and apparel.

Republican candidates have blamed Biden for broad-based price increases as they seek to win back control of Congress from Biden’s camp – tying high gasoline prices to Democratic resistance to new oil and gas drilling and to the White House’s efforts to address climate change.

Treasury Secretary Janet Yellen and other Biden administration officials have defended their policies, attributing price increases to supply chain problems and other unforeseen events, such as the Russian invasion of Ukraine that has boosted prices for energy, wheat and other commodities.

At an event with European Union officials, Yellen – a former Fed chair – noted “favorable indicators on easing of supply chain bottlenecks and softening of labor market pressures,” but added, “we need to see sustained progress and bringing down inflation remains the President’s number one economic priority.”

- More Fed pain ahead -

The most recent data is certain to disappoint the Fed, which in September enacted its third straight increase of 0.75 percentage points as Chair Jerome Powell acknowledged that there isn’t a “painless” way to bring inflation down.

But Thursday’s data showed the Fed’s actions thus far have come nowhere near realizing the goal of two percent inflation over the long run. The central bank has aimed to stop inflation before it becomes ingrained in the economy

Analysts said the disappointing report not only boosts the odds of another 0.75 percentage point hike in November, but also raises the chances for a supersized December rate hike, or for bigger increases down the road.

Higher interest rates weigh on the economy as they increase the cost for mortgages, car loans and other debt products.

Stocks, which have been in retreat over the last month, gyrated following the report, initially tumbling as the market priced in higher interest rates, but later staging a rally.

The Dow Jones Industrial Average ended at 30,038.72, up 2.8 percent and nearly 1,400 points above its session low point in a rebound attributed to technical trading factors.

- Cost-of-living adjustment -

In one bright spot for US consumers, the Social Security Administration announced it was boosting its payments by 8.7 percent in 2023 in the largest cost-of-living adjustment to retirees since 1981.

Retail industry analyst Neil Saunders of GlobalData pointed to one other silver lining: With many retailers facing excess inventories due to supply chain snafus in recent months and unpredictable consumer demand during the pandemic, “discounting will remain elevated” through the holiday shopping season.

While inflation is moderating in some categories, pricing pressure for energy and other essential goods will pose challenges in the upcoming period, Saunders said.

“While many households are now used to inflation, higher energy bills during the winter months could be the next big blow to consumer confidence,” he said.

Fleshing out that point, the Energy Information Administration signaled consumers should expect higher heating bills this winter.

The average household using natural gas will pay $931 this season under the base case weather scenario, up 28 percent from last winter, according to the agency’s winter fuel outlook.