Consumer prices rise more than expected as energy costs surge

The Labor Department reported Wednesday that consumer prices rose slightly in September, despite a decrease in used cars.
Consumer prices for all items increased 0.4% in the month compared to the 0.3% Dow Jones estimate. Prices increased 5.4% year-over-year, compared to the 5.3% estimate by Dow Jones. This is the highest level since January 1991.

However, CPI was not affected by volatile food and energy prices and increased 0.2% month-over-year, as compared to respective estimates of 0.3% and 4.4%.

Dow futures fell slightly after the news, but were positive in the morning. Government bond yields were generally lower because investors gravitated towards safe-haven fid income.

The monthly increase in gasoline prices to 42.1% was 1.2%. For a 42.6% increase in year-over-year fuel oil prices soared 3.9%

The month saw notable increases in food prices, with home-cooked meals rising 1.2%. The September increase in meat prices was 3.3% and 12.6% respectively.

Bob Doll, chief investment officer of Crossmark Global Investments, stated that food and energy are more volatile, but that's the problem. "Hopefully, we can solve our supply problem. However, inflation will not return to the same level of zero to two percent as it was in the past decade.

The inflation pressures have been centered on used car prices in recent months. However, they fell 0.7% per month to bring the 12-month increase to 24.4%. Despite the fact that vehicle costs have fallen, prices continue to rise which could support the idea that inflation is more persistent and pervasive than policymakers believe.

After falling 9.1% in July, airline fares plunged 6.4% in August.

Shelter prices, which account for about a third the CPI, rose 0.4% per month and 3.2% over the 12-month period. The monthly increase in owners' equivalent rent, or the amount an owner would have to pay to rent a property, was 0.4%. This is its largest monthly gain since June 2006.

"This may just be an exaggerated increase after a few relatively modest increases," said Ian Shepherdson chief economist at Pantheon Macroeconomics.

In September, apparel prices declined by 1.1% and transportation services fell 0.5%. Both have shown consistent growth and both still show respective annual gains in the range of 3.4% to 4.4%.

Federal Reserve officials call the current inflation run "transitory" and attribute it largely supply chain and demand issues. They expect the current inflation to recede in the coming months.

This view is however receiving significant criticism lately.

Doll stated, "Fed, this is another data point to say, ‘Fed, you trying to convince us inflation is transitory, just not believable. "Inflation is not an issue if you don't know anyone who doesn't need to live somewhere, doesn’t eat food, and doesn't consume energy. Let's face it.

The International Monetary Fund (IMF) warned Tuesday that the Fed and its international peers should be making contingency plans in case inflation persists. This would require raising interest rates earlier than anticipated to limit price increases.

CNBC heard James Bullard, President of the St. Louis Fed, tell CNBC later in the day that he believes the Fed should be more aggressive in withdrawing economic support and, in particular, its monthly bond purchases. Should inflation prove to be a problem, he expects rate hikes next fiscal year. Raphael Bostic, Atlanta Fed President, stated that the factors that have driven inflation higher "will never be short."

Seema Shah (chief investment strategist at Principal Global Investors) stated that "Today's number shouldn’t move the needle für die Fed." "Inflation already exceeded its goal. If anything, the higher than expected September CPI only reinforces the need for tapering. We are here for November tapering.

Jamie Dimon, CEO of JPMorgan Chase, said Monday that inflation will not be a factor in 2022 as the current conditions will improve.