By Nathalie Voit


Consumer prices in September soared past economists’ expectations, prompting worries that rapid price increases will continue.


According to data from the Bureau of Labor Statistics (BLS), the all-items Consumer Price Index (CPI) increased 5.4% in September from one year earlier, rendering it the worst inflationary spike since the summer of 2008. The index rose faster than the 5.3% increase recorded in August and beyond analysts’ forecasts.


Monthly inflation also exceeded expectations, climbing to 0.4% from August to September. Analysts surveyed by Refinitiv, meanwhile, had predicted prices to rise 5.3% annually and 0.3% in September.


The figures sound an alarm for many economists and officials, who expected prices to eventually moderate once supply disruptions caused by the pandemic eased. Federal Reserve Chairman Jerome Powell previously brushed off price increases as “transitory,” arguing that “recent price gains mostly reflected temporary supply bottlenecks” and will wane over time, according to AP. However, many Fed officials are now voicing different views.   


Atlanta Fed President Raphael Bostic expressed his disdain for the term “transitory” to an audience at the Peterson Institute of International Economics on Oct. 12, noting the current price fluctuations were more aptly described as “episodic.”


“It is becoming increasingly clear that the feature of this episode that has animated price pressures—mainly the intense and widespread supply chain disruptions—will not be brief. Data from multiple sources point to these lasting longer than most initially thought. By this definition, then, the forces are not transitory,” he said. “Instead of that word, I think “episodic” better describes these pandemic-induced price swings.”


In a testament to the unexpected nature of the recovery, Fed officials are now looking into slowing economic support and tightening monetary policy as soon as next month.


In their Sept. 21 and 22 meetings, Fed planners signaled plans to scale back their $120 billion per month asset purchase program if rate hikes are needed to curb inflation. The tapering process could begin as early as mid-November, with a target date to end bond purchases set for mid-2022, the Fed announced.  


The emergency-bond buying program was introduced during the pandemic to revive the economy and spur investment. However, with a recovery bolstered by trillions in federal spending and demand far outpacing supply, policymakers are now worried high inflation could prove more durable than previously thought.


The central bank is now at a crossroads between keeping their benchmark overnight lending rates at near-zero levels until the labor market fully recovers or raising rates earlier than desired to keep prices from spiraling out of control. An interest rate hike would have direct implications for market-wary investors and millions of Americans who are still unemployed.


The unusual mixture of high inflation coupled with high unemployment presents a conflict for the Fed, which is tasked with balancing both full employment and relatively stable prices.


“We’re already seeing officials beginning to stake out arguments on liftoff,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “It’s mostly an inflation story, and an inflation expectations story.”