Core Inflation Rate Crushes 40-Year High, Pressuring Major Fed Rate Hike

Inflation

The Federal Reserve is under pressure to raise interest rates more aggressively after a closely watched measure of U.S. consumer prices spiked in September to reach a 40-year high.

The core consumer price index (CPI), which excludes food and energy costs, rose 6.6 percent year-over-year, the highest level since 1982, according to Labor Department data on Thursday.

September’s core CPI increased 0.6% for the second consecutive month. The overall CPI increased by 0.4 percent and was 8.2 percent higher before seasonal adjustment than it was in fiscal year 2021.

The report said that the advance was broad based, with shelter costs, which account for around a third of the entire CPI index, food and medical care indexes being the largest of ‘many contributors.’ These increases were partly offset by a 4.9 percent decline in the gasoline index.

The recent uptick in inflation, combined with last week’s strong jobs report, has spurred speculation that the Fed will hike interest rates by 75 basis points at its November 1-2 policy meeting. This would be the fifth consecutive rate hike of that size.

The report also emphasizes how high inflation has spread throughout the economy, reducing Americans’ paychecks and forcing many to rely on savings and credit cards to keep up.

Policymakers have launched the most aggressive tightening campaign since the 1980s, but the labor market and demand for goods and services has remained strong. The unemployment rate has dropped to its lowest levels in 50 years even as job growth continues to slow.

In recent weeks, Fed officials have been stressing the importance of getting inflation under control, even if that means higher unemployment and a recession.

The Federal Reserve’s unwavering commitment to stamp out inflation has caused a deterioration in the economic outlook globally.

On Tuesday (Oct. 11), the International Monetary Fund (IMF) released a report that lowered the global growth outlook for next year.

According to their findings, there is a real danger of worldwide recession if central banks mishandle the fight against inflation. In fact, the IMF expects economic growth to slow to its weakest level since the 2008 global financial crisis.

Put simply, it’s going to be quite a bumpy ride in the coming months.

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