United States: Inflation accelerates further in September on soaring energy prices
October 13, 2017
Consumer prices continued to increase through September on the back of higher oil prices and refinery disruptions linked to Hurricane Harvey. They rose 0.5% in September over the previous month, which was slightly above the already sizeable 0.4% increase recorded in August and marked the highest rise in eight months. Energy prices rose 6.1% on a month-on-month basis as a reduced supply of gasoline drove prices at the pump 13.1% higher in September. However, other sub-components were less upbeat; housing only went up 0.2% following a 0.4% increase in August, and food prices recorded a meagre 0.1% rise.
Inflation rose from 1.9% in August to 2.2% in September, a five-month high. The increase reflected higher energy prices, particularly for gasoline and fuel, and came in slightly below market expectations of 2.3% inflation. Annual average inflation continued to trend higher as a result of September’s robust headline figure, rising from 2.0% in August to an over four-year high of 2.1% in September.
Core consumer prices, which exclude food and energy prices, recorded a lower-than-expected 0.1% month-on-month increase in September, just below the 0.2% increase recorded in August. The weak increase reflected higher prices for motor vehicle insurance, education and recreation being partially offset by a smaller pick-up in housing prices and lower prices of new vehicles, household furnishings and medical care.
Core inflation was 1.7% in September for the fifth month in a row. Core inflation is one of the measures followed most closely by the Federal Reserve to assess the extent of inflationary pressures in the economy. This month’s print confirms that underlying inflation remains low, again missing the Fed’s target of 2.0%.
The September inflation report showed that core inflation is struggling to gain traction even as employment reports suggest a pick-up in wage pressures. The softness in core inflation is expected to play a role at the month-end FOMC monetary policy meeting, as dovish members remain wary of inflation taking too long to perk up despite a tight labor market. It is important to mention that the Bureau of Labor Statistics noted that Hurricane Irma had a small impact on data collection in Florida in this report.
Author: David Ampudia, Economist