US September CPI Rises 3.7%, Beating Forecasts and Raising Rate-Hike Pressure

Core CPI Also Slightly Exceeds Forecasts

U.S. consumer prices rose more than expected in September, increasing the likelihood of another Federal Reserve interest-rate increase. Price gains in gasoline, shelter and used cars added to the Fed's challenge after it raised rates last month.

The U.S. Bureau of Labor Statistics said on October 14 that the consumer price index rose 0.6% from a month earlier and 3.7% from a year earlier in September. The monthly increase matched economists' estimates compiled by Dow Jones, but the annual rate exceeded the 3.6% forecast. In August, CPI rose 0.4% on the month and 3.4% on the year.

Core CPI, which excludes volatile food and energy prices, rose 0.3% from the previous month and 2.6% from a year earlier. Both figures were above market estimates of 0.2% and 2.5%. The monthly increase matched August, while the annual gain accelerated from 2.4% in August. That suggests underlying inflation pressure was stronger than expected.

Gasoline led the overall increase in consumer prices. Prices jumped 9.1% from a month earlier and accounted for more than half of the rise in headline CPI. Energy prices climbed 5.2%. Shelter, used-car prices and airfares rose 0.4%, 0.7% and 1.2%, respectively.

The stronger-than-expected inflation reading has renewed focus on whether the Fed will raise rates again this month. The central bank lifted its benchmark rate by 0.25 percentage point last month to a range of 3.75% to 4.00%. At the time, policymakers' dot plot signaled one additional increase by year-end. The next Federal Open Market Committee meeting is scheduled for October 27-28.

Before the data, Bank of America economist Stephen Juneau said a 0.3% monthly rise in core CPI would strengthen the case for a rate increase this month. Immediately after the inflation report, futures markets priced in roughly a 40% chance of a rate hike this month.

Slower job growth complicates the decision on further tightening. Nonfarm payrolls increased by just 29,000 in September from the previous month. The Fed must now judge the timing and pace of any additional rate increases while trying to curb inflation without weakening the labor market too much.

Oh Se-seong, Hankyung.com reporter sesung@hankyung.com