CPI news: Inflation Outpaces Forecasts in September as Jobless Claims Surge

CPI News: Inflation Outpaces Forecasts in September as Jobless Claims Surge

The pace of inflation over the past year surpassed expectations in September, while jobless claims saw an unexpected rise, largely due to the aftermath of Hurricane Helene and a strike at Boeing, the Labor Department reported on Thursday.

The consumer price index (CPI), a key measure of the costs of goods and services across the U.S. economy, rose by 0.2% on a seasonally adjusted basis for the month, bringing the annual inflation rate to 2.4%. Both figures were 0.1 percentage point higher than the Dow Jones consensus forecast.

This annual inflation rate was slightly below August’s level by 0.1 percentage point, marking the lowest reading since February 2021.

When excluding the volatile food and energy categories, core inflation increased by 0.3% month-over-month, pushing the yearly rate to 3.3%. These core figures also came in 0.1 percentage point above market expectations.

In a separate report, weekly jobless claims reached a 14-month high, indicating possible weakness in the labor market despite September’s significant increase in nonfarm payrolls. However, much of the spike in claims could be attributed to the hurricane and the Boeing strike.

The Bureau of Labor Statistics noted that more than three-quarters of the inflation increase stemmed from a 0.4% rise in food prices and a 0.2% gain in shelter costs. These increases offset a 1.9% drop in energy prices.

Other factors contributing to the inflation uptick included a 0.3% increase in used vehicle prices and a 0.2% rise in new vehicle prices. Medical care services saw a notable increase of 0.7%, while apparel prices jumped 1.1%.

Following the release of the report, stock market futures fell, while Treasury yields displayed mixed movements.

The report comes as the Federal Reserve has started lowering benchmark interest rates. After a half-percentage point cut in September, the central bank is expected to continue easing rates, though the timing and extent of future cuts remain uncertain.

Fed officials are becoming more confident that inflation is gradually returning to their 2% target. However, there is growing concern over the state of the labor market.

“It’s the overall trend that matters, not the daily fluctuations,” Chicago Fed President Austan Goolsbee said during an interview with CNBC’s “Squawk on the Street” following the report. “Looking at the last 12 to 18 months, inflation has come down significantly, and the labor market has cooled to what we believe is near full employment.”

Although the CPI isn’t the Fed’s preferred inflation gauge, its components contribute to the personal consumption expenditures price index, the central bank’s primary measure for inflation.

Despite the inflation reading coming in higher than expected, traders in the futures market raised their bets on the likelihood that the Fed would cut rates by 0.25 percentage points during their November 6-7 meeting. According to CME Group’s FedWatch tool, the odds of a rate cut increased to 86%.

Goolsbee emphasized that the data aligns with Fed projections and shouldn’t be viewed as having an outsized influence on monetary policy.

“I want to remind everyone not to overreact to one month of data,” Goolsbee added. “Monetary policy should be based on long-term trends, not short-term fluctuations.”

Concerns about the labor market were further supported by another report released on Thursday. Initial claims for unemployment benefits surged to a seasonally adjusted 258,000 for the week ending October 5, the highest level since early August 2023. This represents an increase of 33,000 from the previous week, far exceeding the forecast of 230,000 claims.

Continuing claims, which lag by one week, also rose to 1.861 million, a gain of 42,000.

The rise in jobless claims can be partially attributed to the damage caused by Hurricane Helene, which struck on September 26, affecting the southeastern U.S. Florida and North Carolina, two of the hardest-hit states, reported a combined increase of 12,376 claims in unadjusted data. Additionally, the strike involving 33,000 Boeing workers contributed to the numbers, with Michigan experiencing the largest weekly increase in claims at 9,490.

On the inflation side, rising food prices highlighted the persistence of price pressures. Egg prices soared 8.4% for the month, resulting in a 39.6% increase year-over-year. Butter prices rose 2.8% in September and 7.8% annually.

However, shelter costs, which have remained elevated longer than expected, increased 4.9% over the past year. This represents a slight deceleration, which may signal easing price pressures in the future, as shelter makes up over a third of the CPI’s total weight.