Inflation rose to 1.5 percent annually in the month of September, the Bureau of Labor Statistics reported Tuesday, up from 1.1 percent the month before, in a possible sign that the U.S. economy is running closer to full capacity.
Based on Tuesday’s numbers, the Social Security Administration announced a 0.3 percent increase in benefits, based on prices in the third quarter exceeding the index in the third quarter of 2014, the last time benefits were raised. That bump-up translates to a few dollars per beneficiary.
The rise in inflation will also give the Federal Reserve an ambiguous datapoint when it next meets to set monetary policy: Headline inflation jumped up, weighing in favor of tightening monetary policy, but “core” inflation ticked down.
Rising housing and medical prices drove inflation over the past year, with shelter up 3.4 percent and medical care up 4.9 percent.
Those gains drove up core inflation, meaning inflation stripping out energy and food prices, which ran at 2.2 percent annually through September, a one-tenth percentage point decrease but still higher than overall inflation.
Part of the reason headline inflation has been lower than core inflation is falling food prices: Grocery prices have dropped 2.2 percent in the past year, the biggest such decline since 2009. Restaurant prices, on the other hand, have risen. And, in recent months, gasoline and broader energy prices have recovered after cratering the past few years.
The low inflation that has prevailed over the past few years has led the Federal Reserve to be extremely cautious about moving away from crisis-era stimulus measures, and Tuesday’s report likely won’t be decisive either way. “[F]or the Fed it’s steady as she goes for those gradual rate hikes,” wrote Chris Rupkey, an economist for MUFG Union Bank. “Today’s inflation data are not hot enough to put a rate hike up on the table when they meet a week before the presidential elections.”
Inflation hasn’t hit the Fed’s 2 percent target since early 2012, leading some officials at the central bank to advocate holding interest rates near zero until there’s definitive evidence that inflation will head back to target. The Fed uses a different inflation metric than the Consumer Price Index, one that typically runs lower.
Over the same time, low prices have boosted the purchasing power of workers, even if those workers haven’t seen their paychecks grow quickly. Thanks in large part to relatively strong wage growth in 2015, inflation-adjusted hourly wages have grown faster over the current business cycle than during any cycle since the 1970s, President Obama’s economic adviser Jason Furman noted Monday.
