The U.S. Bureau of Labor Statistics released its CPI inflation report for September on Thursday. The report showed that inflation rose by 0.4%, which was higher than the forecasts of economists polled by Bloomberg and the Wall Street Journal at 8.1% YoY. However, in this case, the Federal Reserve's forecasts for the consumer price index turned out to be accurate.
The data in the table above was the end product of a real-time simulation system called Inflation Nowcasting, which is used by the Federal Reserve Bank of Cleveland to forecast changes in inflation. This simulation system, which uses real-time daily data, assumed an annualized CPI of 8.2% for September. It is also predicted that inflation against the CPI in October will decrease to 8.04%.
The "core CPI" inflation measure does not take into account changes in the cost of food and energy. The core consumer price index rose from 6.3% in August to 6.6% in September. Core inflation appears to be the best indicator of headline inflation, which is why the Federal Reserve attaches great importance to it to justify its revised forward-looking monetary policy recommendations.
To put September's rise in inflation into perspective, basic commodities that cost $100 a year ago cost $108.20 today.
While the cost of energy has come down slightly, the prices of other essentials have risen significantly. Meals at work or school, for example, increased by 91.4%, while airfare increased by 42.9%.
Since core inflation is the most important component that the Fed uses to decide whether to raise rates, they are now expected to become even more aggressive than previously expected. According to the CME FedWatch tool, there is a high probability that the Federal Reserve will implement two more simultaneous rate hikes of 75 basis points at the November and December FOMC meetings.
If that happens, the Fed will raise rates by 75 basis points five times in a row, a level of aggressiveness not seen since the 1980s. According to CME's probability indicator, there is a 99.3% chance of a 75 basis point rate hike in November. This will be followed by a 71.6% chance of another 75 basis point rate hike in December, bringing federal funds rates in the 450 to 475 basis point range by the end of the year.
Despite the extremely hawkish and aggressive rate hikes implemented by the Federal Reserve since March of this year, it seems that consumer prices for Americans continue to rise. Given the statements made by members of the Federal Reserve at the Jackson Hole symposium earlier this year, beginning with Chairman Jerome Powell's dire warning of more suffering for Americans, it is unlikely that the central bank will slow down its pace of rate hikes.