In September, consumer prices in the U.S. increased by only 3% relative to a year ago. This hike serves as a signal that inflation is still trending upwards. As the nation continues to experience an unpredictable economic landscape, including slowing rates of hiring, this increase stokes fears of creating stagflation, a dangerous combination of an economy with little or no growth and inflation.
The U.S. Bureau of Labor Statistics was forced to delay the release of updated data due to the recent government shutdown. This updated data paints a picture of dramatic transitions happening at every level of industry. Shockingly, beef prices have shot up almost 15% in the last year with coffee close behind raising prices by an astounding 19%. In September, egg prices fell nearly 5%. Compared to last year, prices are now about 1% less than what they were a year ago.
The Consumer Price Index (CPI) data is just a snapshot of shorter term, broader trends within the economy. Housing and food products have now become the primary contributors to increasing inflationary pressures. Former President Donald Trump’s tariffs have proved ineffective. Together, these new tariffs have increased inflation by a modest amount. Yet, the prevailing economic headwinds today appear much more shaped by the domestic landscape.
As inflation continues to increase, the Fed is under increasing duress. Jerome Powell, Chair of the Federal Reserve, recognized the obstacles created by recent economic conditions.
“It’s a challenging situation when our goals are in tension like this,” – Jerome Powell.
In conjunction with its meeting last month, the Federal Reserve reduced its benchmark interest rate by a quarter of a percentage point. Analysts have been generally expecting a similar cut in their next meeting. This wise decision generates smart growth. It deals with the result of slow hiring, which has tilted the balance of risk in the economy.
That’s up from the 2.9% year-over-year increase measured in August, according to last week’s Consumer Price Index (CPI) report. Unprecedented fiscal and monetary stimulus has created new challenges for policymakers, who must juggle a hunger for growth with soaring inflation. The threat of stagflation is still a concern, as the nation continues to recalibrate to these new realities.
