The U.S. Labor Department’s latest report showed that inflation in September rose faster than expected, while jobless claims saw an unexpected spike, partly due to the impact of Hurricane Helene and the Boeing strike. The Consumer Price Index (CPI), which tracks the prices of goods and services across the U.S. economy, increased by 0.2% month-over-month, bringing the annual inflation rate to 2.4%, slightly higher than the expected 2.3%.
Key Drivers of Inflation
While the annual inflation rate was slightly lower than August's 2.5%, it still surpassed market expectations, marking the lowest year-over-year rate since February 2021. Core CPI, which excludes volatile food and energy prices, rose by 0.3% for the month, with the annual core inflation rate reaching 3.3%, also exceeding forecasts.
A significant portion of the inflation increase in September was driven by rising food prices, which jumped by 0.4%. Egg prices surged 8.4% in September, marking a 39.6% increase over the past year. Shelter costs, which account for more than one-third of the CPI calculation, increased by 0.2% month-over-month and 4.9% year-over-year. Despite this, there are signs that shelter inflation may be easing.
On the other hand, energy prices fell by 1.9%, offsetting some of the increases in food and housing costs. Used vehicle prices rose by 0.3%, new vehicles by 0.2%, medical care services by 0.7%, and apparel prices jumped 1.1%.
Pressure on the Labor Market
Despite the strong September nonfarm payroll data, which added 254,000 jobs, initial jobless claims for the week ending October 5 spiked to 258,000, the highest level in 14 months. This marks an increase of 33,000 from the previous week. The rise was primarily attributed to Hurricane Helene and the Boeing strike, which impacted Florida, North Carolina, and Michigan.
Continuing jobless claims, which measure ongoing unemployment, also increased by 42,000 to 1.861 million. This rise highlights continued pressure in the labor market despite recent employment gains.
The Federal Reserve’s Response
As inflation came in above expectations, market forecasts for the Federal Reserve's upcoming policy moves have shifted. The Fed already cut interest rates by 50 basis points in September, and now the market anticipates another 25-basis-point rate cut in November, with an 86% probability according to the CME Group’s FedWatch tool.
Chicago Fed President Austan Goolsbee commented that while September's inflation data was higher than expected, the overall trend is showing a decline in inflation and a cooling labor market. He emphasized that monetary policy decisions should not be based on short-term fluctuations but on long-term trends.
Outlook
Although inflation data indicates that price pressures persist, the slowdown in food and shelter costs could signal that inflation will gradually ease in the coming months. At the same time, the rise in jobless claims suggests ongoing challenges in the labor market. For investors and the forex market, the Federal Reserve's future interest rate decisions will remain a critical factor influencing market movements.
