Inflation came in higher than expected for September, but the news is actually worse than the headline numbers suggest.
As Dominic mentioned earlier, gas prices, which helped slow inflation in the current report, are on track to drive up inflation in October. It’s worth taking a moment to demonstrate that point in more detail.
Over the summer, President Biden declared, “Today, we received news that our economy had zero percent inflation in the month of July — zero percent.” What this meant was that prices were flat in July relative to June. In August, inflation ticked back up, but only modestly — at 0.1 percent.
A deeper look at the numbers in both months, however, showed that in order to have relatively flat inflation over those two months, it took a substantial drop in gas prices — 7.7 percent in July and 10.6 percent in August. Food prices rose significantly in both months, as did the cost of medical care and shelter. In the September report, gas prices were down 2.7 percent. With less help from gas prices, month-over-month inflation picked up to 0.4 percent overall in today’s report.
But there is good reason to believe the overall inflation number won’t be helped by gas prices in the next report.
A look at the data for 2022 reveals that average retail gas prices surged for much of the year, until peaking in mid June at just above $5 a gallon. Then prices steadily declined, reaching $3.65 in mid September. However, they have since increased three weeks in a row, reaching $3.91 thanks to OPEC’s decision to cut petroleum production.
Thus, it seems likely that gas prices will be contributing to higher inflation in October. That means in order for inflation to slow, it will require a slowdown in the cost of food or other goods. If, however, food costs continue to rise at the same rate and nothing else offsets these gains, we will be looking at an even worse report next month.
