US inflation hits 13-year high as CPI data exceeds expectations

The Consumer Price Index (CPI) is a measure of the average change in the prices paid by urban consumers for a basket of goods and services. It is one of the most widely used indicators of inflation in the US economy. The CPI affects the income of millions of Americans, as it is used to adjust Social Security benefits, federal tax brackets, and other payments. The CPI also influences the monetary policy decisions of the Federal Reserve, which aims to keep inflation at a moderate level.


How did the CPI change in September?

The Bureau of Labor Statistics (BLS) released the latest CPI data for September 2023 on October 12, 2023, at 8:30 A.M. Eastern Time. The data showed that the CPI increased by 0.4% in September, after rising by 0.3% in August. The CPI rose by 5.4% over the last 12 months, the largest annual increase since September 2010.

The main drivers of the CPI increase in September were energy, food, shelter, and transportation services. Energy prices rose by 1.3% in September, mainly due to higher gasoline prices, which increased by 1.2%. Food prices rose by 0.9%, the largest monthly increase since June 2020. Shelter costs, which account for about one-third of the CPI basket, increased by 0.5%, the largest monthly increase since October 2005. Transportation services prices rose by 0.5%, reflecting higher airfares and car rental fees.

How did the core CPI change in September?

The core CPI, which excludes food and energy, is a more stable measure of inflation that reflects the underlying trends in consumer prices. The core CPI increased by 0.2% in September, after rising by 0.1% in August. The core CPI rose by 4% over the last 12 months, the largest annual increase since November 1991.

The main contributors to the core CPI increase in September were medical care, apparel, and recreation. Medical care prices rose by 0.8%, the largest monthly increase since August 2016. Apparel prices rose by 0.6%, after falling by 0.4% in August. Recreation prices rose by 0.4%, reflecting higher prices for admission to sporting events and movies.

How did the market react to the CPI data?

The market reaction to the CPI data was mixed, as investors weighed the implications of higher inflation for the economic outlook and the Fed’s policy stance. The stock market initially rose after the release of the data, as some analysts viewed the inflation numbers as moderate and transitory, reflecting supply chain disruptions and pandemic-related factors that will fade over time. However, the market later pared its gains, as some investors worried that inflation could persist and force the Fed to tighten its monetary policy sooner than expected.

The bond market also showed a mixed response to the CPI data. The yield on the 10-year Treasury note initially fell after the release of the data, as some bond traders expected the Fed to maintain its accommodative policy stance and support the economic recovery. However, the yield later rose, as some bond traders anticipated that the Fed would taper its bond purchases and raise its interest rate sooner than expected.

The dollar index, which measures the value of the US dollar against a basket of other currencies, rose after the release of the CPI data, as some currency traders expected that higher inflation would boost the demand for the dollar as a safe haven and a store of value.

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