‘Price stability’ is still nowhere in sight.
Elevated inflation still isn’t dead, even if the president, the Federal Reserve, and everyone else in America (except those who benefit from asset inflation) would like it to be.
We learned yesterday that inflation, as measured by the Consumer Price Index (CPI), had risen by 3.7 percent in September from a year earlier. Much of that increase was caused by higher fuel costs, but core CPI — which strips out food and energy — rose by 2.6 percent year over year, or nearly 3.7 percent annualized. Each index’s rise was slightly higher than economists had forecasted.
You might notice that none of these rates are below the Federal Reserve’s stated inflation target of 2 percent, and they no longer even seem to be falling in that direction.
Speaking of price indices that won’t behave, we got numbers today for the Producer Price Index (PPI): essentially, businesses’ version of the CPI for wholesale expenses. It rose by 1.3 percent in a single month — the highest rate since March 2022 — and jumped by 6.3 percent from last year. Core PPI, excluding food and energy, rose by 5 percent. Those wholesale price hikes should ultimately seep into what customers pay.
The Federal Reserve is more likely to keep interest rates steady at this month’s meeting than to raise them again. That would be a mistake. Multiple Fed officials are publicly acknowledging that rates need to go up but say there is “no urgency” to do so. What about the urgency to prevent more inflation and price distortion than necessary?
Delay means quicker price increases each month and significantly higher cumulative prices in the long run. Apparently that’s not dire enough for the Fed to act swiftly — even though it is always swift to slash rates and churn the printing press when the labor market falters.
If the Fed puts off another rate hike until December or later, it will vindicate the rule of thumb I set out after the previous meeting: Unless the central bank has absolutely no excuse, it will prioritize employment and financial markets over price stability every time.