Can the Fed Control Inflation With Just Rate Hikes?

There isn’t much good news in the latest CPI report. Supply chain items such as new vehicles and furniture are still showing rising prices. Rents continue to rise rapidly. There is some reversal in used cars, appliances and apparel, but not enough to offset bad news elsewhere.

Reports from retailers suggest we should see more areas of price declines this fall, but we’ve been waiting for this for a while.

Maybe the Fed can’t control this stuff in this current world the way they think or used to think without killing the patient. It is their only tool in the multifactorial toolbox.

+ Big jumps in new car and housing prices (0.7 percent) pushed headline CPI up 0.4 percent in September; core CPI rose 0.6 percent.

+ September surge pushed new vehicle prices up 9.4% yoy; Although used car prices fell 1.1 percent, they were still up 7.2 percent year-on-year.

+ Auto insurance is up 1.6 percent in September, up 10.3 percent year-on-year.

+ Auto parts and equipment rose 0.8 percent in September, up 13.4 percent year-on-year. This is also an element of the supply chain where production is returning to pre-pandemic levels.

+ Both rent indexes rose by 0.8 percent in September. Actual rent increased 7.2 percent year-on-year, and owner-occupier rent increased 6.7 percent year-on-year. Bureau of Labor Statistics research shows that these indices are lagging indices of market rents, which are now showing much lower rates of increase.

+ Rents in high-priced cities have lagged overall rent increases: NYC was up 3.0 percent year-on-year, SF was up 2.3 percent and Phoenix was up 20.8 percent.

+ Home food prices rose another 0.7 percent (as in August); increased by 13.0 percent year-on-year. Beef prices fell 0.1 percent but are up 20.3 percent since the pandemic began.

+ Medical care benefits increased by 1.0 percent, 6.5 percent more than in the previous year. A big factor is the 2.1 percent increase in the health insurance index, which is up 28.2 percent year-on-year. This index measures profits and management costs, not premiums.

+ Household furnishings and consumables (a supply chain item) rose 0.6 percent in September, up 9.9 percent year-on-year. Furniture and bedding prices, which were flat or falling before the pandemic, have risen 22.9 percent since February 2020.

+ The 0.3 percent decline in device prices is the third consecutive decline. However, prices were still 13.3 percent above pre-pandemic levels. They had fallen before the pandemic.

+ Apparel prices fell 0.3 percent and rose 5.5 percent year-on-year.

+ Tuition fell 0.3 percent and increased 2.1 percent year-on-year. Tuition is up just 3.7 percent since the pandemic began.

This first appeared on Dean Baker’s Beat the Press blog.