Recognition…Hiroko Masuike/The New York Times
Data released on Thursday should show some signs of progress in the Federal Reserve’s fight against inflation. But that moderation is unlikely to be enough to convince the central bank that it has successfully countered the sharpest rise in prices in four decades.
Headline inflation for the year to September is likely to have risen 8.1 percent, down slightly from 8.3 percent in the year to August, according to economists recently polled by Bloomberg. But this rate is still extremely high. Prices are likely to have risen 6.5 percent after fuel and groceries – which tend to be volatile and are often removed from inflation readings to allow a better sense of underlying trends – were removed, prompting a slight rise in the so-called core index led.
Still, Fed officials and Wall Street analysts will be keeping a closer eye on monthly numbers, including events between August and September. While the yearly numbers reflect what has happened cumulatively over the past 12 months, the monthly data gives a clearer snapshot of how prices are evolving in real-time.
These monthly figures could offer some hopeful signs. Headline inflation is likely to have risen 0.2 percent in September – faster than last month but slower than some of this year’s gargantuan gains. The core index was likely up 0.4 percent from 0.6 percent in the previous month.
This pace, if maintained for an extended period, would still be too fast for the Fed. But moderation would be an encouraging sign, especially when the details of the report suggest the slowdown will continue.
“This is the first in a series of reports that should show us what the Fed has been waiting for for quite some time, which is a steady slowdown in this core pressure,” said Omair Sharif, founder of Inflation Insights.
Many economists expect inflation to moderate in the coming months as supply chains recover, used-car price declines reach buyers and consumer demand slows. However, they expect progress to be gradual as rents continue to rise and other utilities rise.
Analysts at Goldman Sachs expect monthly core CPI inflation to remain around 0.3 percent or 0.4 percent over the next few months, before rising to 0.2 percent or 0.3 percent next year will sink. They project core inflation to be 6 percent annually through the end of 2022 and 2.9 percent through the end of next year.
While that would be a significant improvement, it would still be uncomfortably fast, underscoring how difficult it could be to return inflation to normal. The Fed is targeting 2 percent average annual inflation, although it defines this using a different measure of inflation — the personal consumption spending measure, which is not released until late October.
As rapid inflation has continued for more than a year and a half and has spread to a range of goods and services, central bankers are likely to remain focused on bringing inflation down. Furthermore, economists have repeatedly stated that inflation peaked – only to revise those forecasts when inflation rose again.
“They are quite aware of head forgery,” Mr Sharif said.
Fed officials have raised rates five times this year, and officials are expected to debate a half-point or three-quarters-point hike at their upcoming meeting. Monetary policy changes will take months or even years to have their full impact on the economy, but central bankers have made it clear that they want to show they are determined to fight inflation.
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