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An inflation monitor that the Federal Reserve closely follows continued to persist at elevated levels in September, as consumer spending remained robust and the economy showed signs of sustained strength.
According to the latest report released by the Commerce Department on Friday, prices surged by 0.4% from August to September, mirroring the previous month's increase, a news agency report said.
Furthermore, when compared to the same period 12 months earlier, inflation remained unchanged at a concerning 3.4%, the Associated Press report said.
September's month-to-month price surge has exceeded the pace consistent with the Federal Reserve's longstanding 2% annual inflation target. This development raises concerns as it compounds the already elevated costs associated with necessities like rent, food, and gasoline. Economists and analysts have been closely watching inflation trends, and this latest data underscores the challenges the Federal Reserve faces in managing the nation's monetary policy.
With the Federal Reserve's next meeting scheduled for the upcoming week, market participants and policymakers are closely watching for clues about the central bank's stance on interest rates. While the consensus expectation is for the Fed to keep its key short-term interest rate unchanged, there is a growing sense of unease about the potential persistence of high inflation. Federal Reserve officials have consistently acknowledged the risk posed by robust economic growth, which could lead to inflation remaining elevated and necessitate further interest rate hikes to bring it under control.
The Federal Reserve has been actively combatting inflation since March 2022 when it initiated a concerted effort to curb rising prices. During this period, the central bank has increased its key interest rate from near-zero levels to approximately 5.4%. This aggressive tightening of monetary policy has helped bring down inflation from its peak of 9.1% in June of the previous year. However, the latest data suggests that inflationary pressures are still a concern, and the central bank's actions in the coming months will be crucial in determining whether inflation can be successfully tamed.
As the Federal Reserve grapples with the ongoing challenges posed by inflation, the financial markets and the broader economy will be closely watching for any shifts in policy that could impact interest rates, borrowing costs, and overall economic stability. The path ahead remains uncertain, with the central bank's decisions likely to have a significant impact on the trajectory of inflation and the nation's economic outlook.
The Associated Press report adds:
On Thursday, the government reported that strong consumer spending drove the economy to a robust 4.9% annual growth rate in the July-September quarter, the best such showing in nearly two years. Heavy spending by consumers typically leads businesses to charge higher prices. In Friday’s report on inflation, the government also said that consumer spending last month jumped a robust 0.7%.
Excluding volatile food and energy costs, “core” prices increased 0.3% from August to September, above the 0.1% uptick the previous month. Compared with a year earlier, though, core inflation eased to3.7%, the slowest rise since May 2021 and down from 3.8% in August.
A key reason why the Fed may keep rates unchanged through year's end is that September's 3.7% year-over-year rise in core inflation matches the central bank's forecast for this quarter.