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October 13, 2021 10:45 AM, EDT

Consumer Prices Outpace Forecast as Inflation Dogs Economy

Consumer spending David Paul Morris/Bloomberg News

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Prices paid by U.S. consumers rose in September by more than forecast, resuming a faster pace of growth and underscoring the persistence of inflationary pressures in the economy.

The consumer price index increased 0.4% from August, according to Labor Department data released Oct. 13. Compared with a year ago, the CPI rose 5.4%, matching the largest annual gain since 2008. Excluding the volatile food and energy components, so-called core inflation rose 0.2% from the prior month.

The median estimate in a Bloomberg survey of economists called for a 0.3% monthly gain in the overall measure and a 0.2% advance in the core rate.

A combination of unprecedented shipping challenges, materials shortages, high commodities prices and rising wages have sharply driven up costs for producers. Many have passed some portion of those costs along to consumers, leading to more persistent inflation than many economists — including those at the Federal Reserve — had originally anticipated.

The pickup in price growth seen last month reflected higher food and shelter costs. Meantime, measures of used cars and trucks, apparel and airfares cooled.

U.S. equity futures fluctuated and Treasury yields were little changed following the report.

Hotels, Rents

The CPI data reflects crosscurrents in the economy. Hotel fares fell, reflecting the impact of the delta variant on travel, but inflation is broadening out beyond categories associated with reopening.

Higher home prices are now starting to filter through in the data. Rent of primary residence jumped 0.5%, the most since 2001, while a measure of homeowners’ equivalent rent posted the biggest gain in five years. Shelter costs, which are seen as a more structural component of the CPI and make up about a third of the overall index, could prove a more durable tailwind to inflation.

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The report will likely reinforce the Fed’s inclination to soon start tapering its asset purchases, especially as the supply-chain challenges plaguing businesses show little signs of abating. Minutes from last month’s Federal Open Market Committee meeting — out Oct. 13 — will provide further insight on policymakers’ views toward progress on employment and inflation goals for tapering.

A New York Fed survey out Oct. 12 showed U.S. consumers’ expectations for inflation continued to rise in September, with 1-year and 3-year expectations accelerating to record highs.

American consumers are also experiencing higher prices for new vehicles and household furnishings and supplies, which increased by a record 1.3%, the report showed. And looking ahead, elevated energy prices are set to take an additional bite out of workers’ paychecks.

While wages have strengthened in recent months, higher consumer prices are eroding Americans’ buying power. Inflation-adjusted average hourly earnings rose 0.2% in September from a month earlier, but are down 0.8% from a year ago, separate data showed Oct. 13.

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