Inflation sees slight improvement in September but still near record-high level

Consumers may be facing an expensive holiday season, according to experts

The Federal Reserve is likely to raise rates again as inflation remains high.  (iStock)

The annual level of inflation improved slightly in September but still remains near record-high levels, according to the latest report from the Bureau of Labor Statistics (BLS).

The Consumer Price Index (CPI), a measure of inflation, rose 8.2% annually in September, slightly less than the 8.3% increase in August but persistently close to the 40-year high of 9.1% that was set earlier this year, the BLS said. On a monthly basis, inflation rose 0.4%.

Overall, prices for shelter, food and medical care expenses increased in September and were offset by the drop in gasoline prices. The food index rose by 0.8% and the home index increased by 0.7%, the same level of increase seen in August.

"The Fed is trying to get inflation under control, but you wouldn't know that looking at today's CPI data," John Leer, Morning Consult's chief economist said in a tweet. "While energy prices are falling, services inflation in shelter and transportation is running hot, forcing consumers to make tough spending decisions through year-end."

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Federal Reserve likely to keep raising rates, expert says

The "hotter-than-expected" inflation numbers mean that the Federal Reserve is likely to "stay the course with interest rate increases," according to Robert R. Johnson, Ph.D., CFA, CAIA and a finance professor at Creighton University's Heider College of Business. 

"This Fed has repeatedly stated that they will be data dependent and today's data provides fuel to the Fed to be more hawkish regarding rate hikes," Johnson said. "Expect at least another 75 basis point hike in the target Fed funds rate following the meeting on Nov. 1-2."

The Federal Reserve raised interest rates by 75 basis points at its last meeting in September. The rate hike brought the federal funds rate to a targeted range of 3% to 3.25%, and the Fed said it remained "strongly committed to returning inflation to its 2% objective."

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Consumers face tough holiday season, expert says

Higher interest rates, inflation and an increased cost of living could make for a difficult holiday season, Johnson said.

"These higher prices will reduce demand for products and we will likely see softer retail numbers this holiday season," he said.

And if the Federal Reserve does indeed continue to raise rates, increased financing and borrowing costs will add to consumer expenses, according to Tomas J. Philipson, the Daniel Levin Chair of Public Policy at The University of Chicago.

"Both goods purchased for the holidays as well as buying them on credit will become more expensive than what was expected," Philipson said.

However, another expert predicted that goods and prices would likely moderate as retailers aggressively cut inventories. "Expect lots of sales at retailers during the holiday season," Gene Goldman, chief investment officer at Cetera Investment Management, said. 

Adobe Analytics released a forecast for online sales for November and December, which said "massive discounts" were expected for internet purchases this holiday season. The biggest discounts are expected to hit between Thanksgiving and Cyber Monday.

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