Inflation fell in September, as reported by the U.S. Bureau of Labor Statistics, with the consumer price index showing a growth of 2.4% from the previous year. This was a decline from August and the smallest annual reading since February 2021. While there were some trouble spots, such as increases in categories like clothing, car insurance, and groceries, these were mostly seen as one-off increases. Economists believe that the trend in inflation remains positive and that the blip seen in September will not be sustained. Inflation has significantly decreased from the peak during the pandemic and is moving towards policymakers’ target of around 2%.
Food inflation has also been fairly tame over the past year according to economists. Grocery prices have only increased by 1.3% since September 2023, with prices for agricultural commodities that are major inputs for food production either falling or remaining stable. Wage growth has slowed, reducing labor costs and allowing grocery stores to offer more incentives and promotions to consumers. While there was a large jump in grocery inflation from August to September, experts believe that this will likely not be sustained going forward, as individual food items have their own unique dynamics affecting pricing.
Housing inflation, which is a significant component of the CPI, has been a major stumbling block for getting inflation back to its target level. Shelter inflation, which includes rental prices, has been gradually declining but remained high. In September, shelter inflation slowed down, which is seen as a positive sign. Experts believe that shelter inflation is now definitively moderating, which is essential for overall inflation and core inflation to be in check. Housing falls into the services category of the economy, where inflation has been slower to recede compared to goods.
Services inflation, which includes categories like insurance, has been slow to recede due to factors like shelter inflation and other elevated categories. Many services are heavily reliant on prices in other parts of the economy, so dynamics such as increases in car prices can lead to higher premiums for services like insurance. It typically takes time for these dynamics to filter through to the services side of the economy, contributing to the slower decrease in services inflation. For example, prices for motor vehicle insurance increased by 1.2% from August to September and by about 16% since September 2023.
Overall, despite some areas of concern like clothing, car insurance, and groceries, the trend in inflation remains positive. The blip in inflation seen in September is not expected to be sustained, and the overall inflation rate is moving closer to the target set by policymakers. Food inflation has been relatively tame, with grocery prices showing minor increases over the past year. Housing inflation, which has been a challenge in getting inflation under control, has shown signs of moderating, which is a positive development. Services inflation, while slower to recede, is expected to follow suit as other factors contributing to inflation stabilize.
