Stocks initially plummeted earlier today then recovered after the government reported that the headline consumer price index (CPI) rose at a higher-than-expected annual pace of 8.2 percent in September, dashing hopes on Wall Street that the Federal Reserve might be able to relax on its fight against inflation later this year.
The core CPI, which excludes food and energy, increased 6.6 percent from a year ago, accelerated to a new 40-year high.
“Horrible CPI number,” said Andrew Brenner, the head of international fixed-income at NatAlliance Securities. Brenner questioned what the Federal Reserve might do with interest rates: “Will they go 100 basis?”
Stock futures on the S&P 500 sank below 2 percent, then swung about 4.8 percentage points between the intraday high and low — the biggest midday turnaround since March 2020, according to Dow Jones Market Data. Ten-year Treasury yields jumped above 4 percent.
In midday trading, the Dow Jones Industrial Average rose by more than 600 points, or 2.17 percent, and the tech-heavy Nasdaq Composite was up 1.2 percent.
Many economists have been expecting the pace of inflation to slow as consumer demand levels off, supply chains recover and used car prices continue to decline. But that process was always expected to be gradual, as rents continued to climb and other service costs increased, New York Times reported.
The monthly CPI data for September from the Bureau of Labor Statistics offered even more reasons to worry. Overall inflation climbed 0.4 percent for the month in September, much more than August’s 0.1 percent, while the core index climbed 0.6 percent, matching the big gain in the prior month.
That pace is far too fast for the Fed and will likely show policymakers that their work is not done slowing down consumption, the labor market, and inflation, the New York Times reported.
The Fed has raised interest rates five times in 2022 and suggested it would consider another increase of a half-to-three-quarters of a point at its November meeting.
“This is very troubling — the trend is very troubling,” said Blerina Uruci, a U.S. economist at T. Rowe Price. “It is hard to see how they build the case to step down the pace in December.”
Economists surveyed by Bloomberg had expected a slight deceleration to 8.1 percent annually and a core reading to accelerate to 6.5 percent from a year earlier. Instead, the numbers show that September produced the second consecutive hotter-than-expected CPI with food, shelter and medical care producing the biggest gains.
Progress in the fight against inflation hasn’t materialized yet. With service industries such as pet care and dental care raising prices, it’s a sign that tight labor markets are pushing up wages and feeding into higher prices.
“We are starting to see persistent inflation creeping into the economy,” said Steve Rick, chief economist at CUNA Mutual Group. “We are really concerned about this turning into a wage price spiral, with wages rising and making it hard to get inflation down anytime soon.”