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Inflation hits a brand new 30-year excessive by the Fed’s favourite measure

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Customers shop for groceries at a supermarket in Chicago, Illinois on June 10, 2021. Inflation rose 5% in the twelve month period ended May, the largest increase since August 2008. Food prices rose 2.2% over the same period.

Scott Olson | Getty Images

Annual inflation rose as fast as it has for more than 30 years in September, despite a decline in personal income, the Commerce Department reported on Friday.

Price pressures, as measured by the consumer spending index, including food and energy, rose 0.3% for the month, pushing the year-over-year increase to 4.4%. This is the fastest pace since January 1991.

Excluding food and energy costs, inflation rose 0.2% for the month in line with the Dow Jones estimate and 3.6% for the twelve month period, unchanged from August but good for its highest level since May 1991. The Federal Reserve prioritizes what is known as the core PCE readings among a set of measures it uses for inflation.

The sustained surge in inflation came when personal income fell 1% in September, more than the expected 0.4% decline. Consumer spending rose 0.6% in line with Wall Street estimates.

Headline inflation was driven by a 24.9% increase in energy costs and a 4.1% increase in food. Service inflation rose 6.4% yoy, while goods prices rose 5.9%.

The inflation and income numbers come as the Fed grapples with the specter of higher prices and lower growth. Gross domestic product rose at only 2% annualized pace in the third quarter, the slowest since the recovery began after a recession that ended in April 2020.

Personnel costs also rose, increasing 1.3% in the third quarter, above estimates of 0.9%, the Department of Labor reported. The year-on-year increase was 3.7%, slightly higher than in the first quarter and the fastest acceleration since the second quarter of 2002.

Wages and salaries rose 4.6% from 2.7% in September 2020.

Earlier this morning, Treasury Secretary Janet Yellen, a former Fed chairwoman, said she was still expecting inflation to subside, although she and other officials admitted it would be more persistent and longer than expected.

“Year-over-year inflation remains high and will be for some time due to what happened in the first few months of the year,” Yellen told CNBC of Rome and the G-20 summit. “But I think the monthly rates will go down in the second half of the year. I think we will see a return to levels close to 2%.”

Yellen noted that consumers have high levels of savings and cash, which they believe should fuel growth.

The savings rate in September was 7.5%, equivalent to $ 1.34 trillion, down from 9.2% in August and the lowest monthly figure since December 2019.

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