WASHINGTON – The country’s inflation rate is likely to continue to rise into October, giving the Federal Reserve no reason to relax as it tries to rein in price gains by steadily raising interest rates.
The Labor Department is expected to report Thursday that consumer prices rose 8% from 12 months ago and a strong 0.6% from September to October, according to a survey of economists by data firm FactSet. A separate measure called core inflation, which does not include volatile food and energy costs, is expected to rise 6.5% last year and 0.5% between September and October.
Like many other countries, the United States is struggling to control inflation, which is affecting millions of households and dampening the outlook for the economy as the Federal Reserve raises borrowing costs for businesses and consumers. Used to be. Inflation accelerated due to supply and labor shortages after the pandemic recession, a boom in consumer spending largely fueled by federal aid, and food and electricity cuts following the Russian invasion of Ukraine.
So far this year, the Fed has raised its benchmark interest rate in a massive six-fold increase, raising the risk that higher interest rates (for mortgages, car purchases and other high-cost expenses) will hurt the world’s largest economy. will lead to recession.
Inflation worries many voters in elections
Inflation was one of the top concerns of many voters in the mid-term assembly elections that ended on Tuesday. His economic concerns contributed to the loss of Democratic seats in the House of Representatives, even though Republicans failed to make the huge political gains that many had hoped for.
Even at its current highs, some measures have begun to ease inflation and may continue in the coming months. For example, most measures of workers’ wages show that the level of solid wage growth over the past 18 months has subsided and started to fall. Although workers’ wages are not the main driver of higher prices, it could ease inflationary pressures if companies compensate for their higher labor costs by charging customers more.
Supply chain disruptions are largely unresolved, except for automakers, who are still struggling to acquire the computer chips they need. Shipping costs are back to pre-pandemic levels. Cargo ship backup has been approved from the Port of Los Angeles and Long Beach.
And as new rent declines revealed in real-time measures from sources like Apartmentlist and Zillow begin to reflect in upcoming government measures, that factor should dampen inflation as well.
Although many fear the economy will go into recession next year, the country’s job market remains resilient. Employers have added a healthy average of 407,000 jobs a month, and the unemployment rate is just 3.7%, near a half-century low. Job openings are still at historically high levels.
But the Fed’s rate hike has caused serious damage to the US housing market. The average rate on a 30-year term mortgage has more than doubled over the past year, to 7% before falling slightly last week. As a result, housing investment fell in the July-September quarter, falling at an annualized rate of 26%.
High mortgage rates have stymied sales. Home prices are slowing significantly compared to a year ago and have started falling on a monthly basis. The cost of leasing a new apartment is also coming down.
However, due to the way the government calculates housing costs, economists believe that home prices have risen in October and pushed broader measures of inflation. The government measures the cost of all rents, which include most of the rents under existing leases. However, the rent requested for new leases is gradually coming down.
And economists expect prices of several key commodities to fall. Older cars, whose prices soared last year as a shortage of computer chips sharply reduced the availability of new cars, are expected to decline from September to October. The wholesale cost of used cars has been declining steadily, but has not yet been fully reflected in retail prices.