Inflation Climbed More Than Expected in September 2022

Rising food, housing, and medical costs pushed prices higher than anticipated

Consumer prices in the U.S. climbed more than economists expected last month, as food, housing, and medical costs surged. 

Headline inflation as tracked by the Consumer Price Index (CPI) rose 0.4% in September, up from August's 0.1% gain, and slightly higher than the 0.3% economists had expected, according to the Bureau of Labor Statistics.

Compared to the same period in 2021, the index was up 8.2%, down from 8.3% in August as energy prices eased off their highs. That rate was also higher than economists anticipated. 

Excluding food and energy prices, the "core" rate of inflation rose 0.6% last month, as it did in August, and was up 6.6% from the same period a year earlier, accelerating from an annual rate of 6.3% in August to a new 40-year high.

Stocks tumbled on the heels of the report’s release, with the S&P 500 falling over 2% at the start of trading.

Key Takeaways

  • The CPI rose 0.4% in September compared to a month earlier, and 8.2% year-over-year, higher than economists expected.
  • Core inflation, which excludes volatile food and energy costs, rose 0.6% in September and 6.6% from a year ago, a 40-year high.
  • Rising costs for housing, food, and medical care contributed the most to September’s monthly increase.
  • The hotter-than-expected inflation reading could prompt the Federal Reserve to maintain its aggressive monetary policy stance ahead of its November policy meeting.

Where Costs Climbed Most

Rising prices for housing, food, and medical care contributed the most to September’s monthly rise, and were partially offset by a nearly 5% drop in gas prices. Food costs were up 0.8% in September, as “food at home” and grocery prices surged. 

Energy prices broadly declined 2.1% as gas prices eased off their highs, but natural gas and electricity prices increased. Prices for clothes and used vehicles were also among those that declined.

Implications for Fed Rate Hikes

Today’s hotter-than-expected consumer inflation reading could dash hopes for a slowdown in the Fed’s tightening path. Fed funds futures data published by the CME Group shows traders are pricing in an over 90% chance of another 75 basis point (bp) rate hike at the next policy meeting of the FOMC in early November.

The Fed has raised interest rates by a cumulative 300 bps since March in an effort to tame soaring inflation that is running near a 40-year high. Fed policymakers are anticipating a year-end target federal funds rate of roughly 4.5%, or 1.5% above its current level.

Article Sources
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  1. Bureau of Labor Statistics. "Consumer Price Index Summary: September 2022"

  2. CME Group. "Fed Watch Tool: Target Rate Probabilities For Nov. 2 FOMC Meeting"

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