The key indicator of inflation in the US in September remained at a high level of 6.2% | News

Excluding volatile food and energy costs, so-called core prices rose 5.1 percent last month from a year earlier. That’s faster than the 4.9 percent annual gain in August, though below the four-decade high of 5.4 percent reached in February.

The latest price figures came in just as Americans began voting in the midterm elections in which Democrats’ control of Congress is at stake and inflation has risen to the top of voters’ concerns. Republicans have blamed President Joe Biden and Democrats in Congress for the spike in prices that has hit households across the country.

Higher pay helps many workers keep costs down. Wages and benefits rose 5 percent in the July-September quarter from a year ago. It was a healthy increase, slightly below the two-decade high of 5.1 percent reached in April-June.

However, there are signs that wage growth is cooling slightly. It grew by 1.2 percent on a quarterly basis from the April-June quarter to the July-September period. Still, it marked the second quarterly slowdown since compensation growth hit a 20-year high of 1.4 percent in the first three months of 2022.

Fed Chairman Jerome Powell earlier cited Friday’s payrolls numbers, known as the employment cost index, as one of the most important measures of workers’ pay. Since the pandemic ended, the index has risen sharply, with companies offering more generous pay and benefits to attract and retain workers.

Businesses often pass the cost of this higher payment on to their customers in the form of higher prices, thereby exacerbating inflation. As a result, the Fed may welcome a slight slowdown in wage growth as a sign that inflationary pressures are easing.

While consumers spent at a solid pace last month, there were signs in Friday’s report that the trend may not last. Many Americans are using their savings to keep up with inflated spending on groceries, rent and utilities, or taking on more credit card debt. The savings rate fell to 3.1 percent, slightly above 3 percent in June, which was the lowest rate in 14 years.

Americans, on average, built up their savings during the pandemic, when many people stayed home, postponed travel and vacations, and dined out less. Economists estimate that this extra savings totaled about $2.4 trillion last year, mostly among higher-income Americans. But they are shrinking and now stand at about $1.5 trillion.

Friday’s report also showed that consumers spent more last month, even after adjusting for inflation, suggesting Americans are eager to keep spending amid high prices. From August to September, consumer spending increased by 0.6 percent, or by 0.3 percent adjusted for price increases.

“A modest slowdown in wage growth is certainly welcome by the Fed, but won’t prevent a 0.75 percentage point rate hike at next week’s FOMC meeting,” said Nancy Vanden Houten, chief U.S. economist at Oxford Economics.

The central bank’s latest rate hikes are well above the quarter-point increases it has typically used in the past when it sought to tighten lending to fight inflation. But after was caught off guard at the end of last year, as prices accelerated much more than Fed policymakers expected, officials raised their base rate at the fastest pace in four decades. By doing so, they increase the risk of a recession – something many economists expect will happen next year as a result.

The Fed’s hike has led to much higher interest rates for businesses and consumers, especially mortgages. The average 30-year fixed mortgage rate rose more than 7 percent this week, according to Freddie Mac, the highest level in two decades and more than double the rate a year ago.

A weak housing market has slowed the economy as fewer home purchases also drag on sales of furniture, appliances and home improvement equipment.

But that fall has not yet been reflected in the government’s measures of housing costs, which include rents, which for many people are still rising as their leases are extended. It may take until late spring or summer before falling home prices are reflected in government inflation indices. This delay could keep official inflation figures from falling significantly over the next few months.

Car prices are like that is also showing early signs of abating, although they are still significantly higher than before the pandemic. Car prices rose 0.1 percent from August to September, the slowest increase in six months.

The Fed tracks Friday’s inflation measure, called the personal consumer price index, more closely than it does the government’s better-known consumer price index. Earlier this month, the government said CPI rose 8.2 percent in September from a month earlier, up from June’s 9.1 percent increase, the biggest in four decades. The decrease was mainly due to lower gas prices.

The PCE index tends to show a lower rate of inflation than the CPI. Rents, rising at the fastest rate in 35 years, weigh twice as much in the CPI as in the PCE.

The PCE price index also seeks to account for changes in the way people shop when inflation jumps. As a result, it can capture, for example, when consumers switch from expensive national brands to cheaper private label brands.