Inflation Stays Sky-High As Core Prices Soar Above Expectations

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Inflation increased 0.4% in September from August as “core” inflation, measuring the price of goods excluding food and energy, soared above expectations to a 40-year-high, according to the Bureau of Labor Statistics (BLS).

Core inflation rose 6.6% year-over-year and 0.6% month-to-month in September, beating year-over-year expectations by 0.1%, while the Consumer Price Index (CPI) fell 8.2% overall year-over-year despite spiking 0.4% from August, the BLS announced Thursday. Economists had predicted CPI would fall 8.1% year-on-year in September, down from 8.3% in August.(RELATED: Key Inflation Metric Doubles Expectations With Core Prices Still Astronomically High)

The decline in overall inflation can be attributed largely to a decline in energy costs, although they remain elevated by 19.8% year-on-year compared to 23.8% in August, according to the BLS. Food costs remain historically high, with the overall food index falling slightly to 11.2% annually, down from 11.4% in August.

With both headline and core inflation still well above the Federal Reserve’s target of 2%, the Federal Reserve is unlikely to halt its aggressive campaign of interest rate hikes, CNBC reported Wednesday. Goldman Sachs warned investors late September that even in the event of a so-called “soft landing,” where the Federal Reserve tames inflation without inducing a recession or a significant increase in unemployment, the Fed is likely to continue aggressive rate hikes through the end of the year, raising rates from the current baseline of 3.25% up to 4.5%.

The U.S. added 263,000 jobs in September, the slowest rate of the year, as the labor market continued to cool. Bank of America’s chief U.S. economist Michael Gapen warned Monday that unemployment could spike if the Fed continues its rate hikes, pushing unemployment as high as 5.5% from its current level at 3.5%, costing the U.S. 175,000 jobs per month early next year.

“No doubt the Fed still has its work cut out for them, and if tomorrow’s CPI read is hot, don’t be surprised to see some investors come to grips with how long the road to tamer inflation may be,” Mike Loewengart, head of portfolio management at Morgan Stanley told CNBC.

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