Shelter costs put major pressure on inflation in September

The consumer price index (CPI) increased by 0.4% in September (compared to 0.6% in August), resulting in an annual inflation rate of 3.7% (exceeding the expected 3.6% and unchanged from August). As for core CPI inflation, which excludes volatile components such as food and energy, it remained stable with respect to the previous month and reached 4.1% annually. This represented a notable improvement from August’s 4.3%.

As for the breakdown of the report, the gasoline component increased by 2.1% in the month (up 3% annually), although it significantly slowed down from August’s 10.6%. The category that includes all energy increased by 1.5% on a monthly basis, although it registered a slight contraction of 0.5% in its annual rate.

Surprisingly, the shelter index continued to advance. This category, which represents the largest average U.S. household expenditure, contributed more than 70% of the total increase in the core CPI over the past twelve months and was the most significant factor in the latest monthly change. September saw a 0.6% increase (up 7.2% annually), the highest since May of this year. Further detailing, residential rents were up 0.6% monthly (up 7.2% annually), principal residence rents were up 0.5% monthly (up 7.4% annually), and the property owner equivalent rent, which indicates what owners believe they could get for their properties, was up 0.6% monthly (up 7.1% annually).

Finally, the services category (excluding energy services) increased by 0.6% in the month, resulting in an annual figure of 5.7%, while food registered a total monthly change of 0.2% (up 3.7% annually). Noteworthy, food away from home continued to experience pressure with a monthly increase of 0.6% (up 6% annually).

Overall, the trend in inflation continues to show improvement since the peak reached in June of last year, when the annual rate reached 9.1%, the highest in approximately 40 years. However, as we have mentioned on previous occasions, there is still room for improvement, especially with regard to services (excluding energy services) and shelter. 

It is important to keep in mind that gasoline prices could increase in the short term due to tensions in the Middle East. It is also relevant to consider that the September employment data was quite strong. In this context, consensus probabilities for the upcoming November and December announcements broadly consider for now that there will be no further increases to the reference rate. However, the tone of a restrictive environment could be maintained, given that this was expressed in the minutes of the last meeting of the Federal Reserve, pointing out that there was unanimity that policy will remain restrictive until there is greater clarity that inflation is firmly on its way to the 2% target, without ruling out the option of a new hike before the end of the year.

CPI monthly change (%) over the last twelve months

Source: U.S. Bureau of Labor Statistics

Change (%) in the last twelve months in CPI and Core CPI

Source: U.S. Bureau of Labor Statistics