The U.S. government will release its next monthly inflation report on Thursday, and it is widely expected to show inflation cooling.
The Bureau of Labor Statistics will release its latest price data this morning. Experts believe that overall consumer prices rose 0.2% compared to August and 3.6% compared to last year.
Meanwhile, core inflation, a measure of cost increases that excludes energy and food prices because of their volatility, is expected to rise 4.1% compared to September last year.
Both figures would show that prices rose less in September than in August. Prices for consumers rose in August as gasoline prices rose 10% since July.
Thursday morning’s report could be particularly important for the development of the economy.
The Federal Reserve raised interest rates significantly from March 2022 through the summer of this year to control inflation. Inflation had reached its highest level in 40 years at 9.1% per year in mid-2022 and has generally slowed since then.
That doesn’t mean prices are lower than before. Instead, they rise more slowly. Still, these slower increases have been a relief for some consumers, and wages have risen faster than inflation recently, making it easier for people to afford goods and services.
What about future interest rates?
The Fed left interest rates unchanged in September and said there had been progress in fighting inflation. It is now in waiting mode.
But after 12 consecutive monthly declines, inflation accelerated again in July and August. The increases were small, and there were reasons why experts weren’t particularly worried about them – for example, gas prices rose 10% in August, and that hasn’t happened again.
Still, Raul Diaz, regional senior investment officer at Northern Trust, said there is no guarantee that inflation will fall further.
“Inflation could flare up again as the labor market has been very resilient and the U.S. is a highly consumer-driven economy,” Diaz said.
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If data shows inflation remained higher than expected in September, particularly in core areas, that could prompt the Fed to start hiking rates again.
That would further slow the economy by making it more expensive for individuals and businesses to borrow money, and mortgage rates would rise even further.
The Fed will announce its next interest rate decision on November 1st. Their key interest rate is currently in the range of 5.25% to 5.5%, the highest since 2000.
While inflation remains above the Fed’s target of 2% per year, experts say there are signs that things are moving in the right direction, even if the economy is doing quite well.
That’s one reason the Fed left interest rates unchanged in September. However, another better-than-expected inflation report would challenge this view.
Like interest rates, mortgage rates are at a 23-year high, which has made it much more difficult for people to afford a home.
Diaz told NBC News that this is just a challenge for consumers and the economy in general. He said higher interest rates, the end of the federal student loan payment pause, the recent rise in gasoline prices and dwindling personal savings are expected to impact consumer spending in the coming months. For this reason, he and Northern Trust expect economic growth next year could be quite weak.
“We do not expect a recession to occur in the next twelve months. We just assume that growth, while positive, will be quite low,” he said.
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