Core Inflation Flat While Overall Gauge Ticks Up to a 13-Year High

The U.S. core inflation rate known as the Federal Reserve’s preferred gauge of prices rose 4% in September from a year earlier, flat with the prior month, according to a report from the Labor Department on Wednesday.

It was in line with the expectations of economists, per various polls including one from Trading Economics. Because of that, it’s unlikely to rattle the mortgage markets, said Keith Gumbinger, vice president of mortgage data firm HSH.com.

"There shouldn't be too much impact on mortgage rates," Gumbinger said. "It's encouraging that the core inflation seems to be indicating a leveling off."

The main gauge of inflation, which includes volatile items such as energy and food, rose 5.4% from a year ago, the fastest pace in 13 years and surpassing the 5.3% estimate of economists polled by Trading Economics. In the prior month, it rose 5.3% from a year earlier, according to the government data.

The increase in September was led by a 25% spike in energy prices from a year ago, according to the report. Food prices rose 4.6% from a year earlier.

"Energy prices have a tendency to go up and down very considerably from time to time, so investors tend to look beyond that," Gumbinger said.

Federal Reserve officials include Chairman Jerome Powell have sought to reassure markets that the price increases in some sectors are temporary fallouts from the pandemic.

"Rising costs for basic items such as food, energy and housing were behind September's gain," Wells Fargo economists said in a statement on the inflation report. "The logjams across supply chains show no signs of easing yet," they said, referring to the bottlenecks caused by the pandemic.

The U.S. central bank's policymakers have used the word "transitory" so often, it's become a joke. Federal Reserve Bank of Atlanta President Raphael Bostic said in a virtual speech on Tuesday to the Peterson Institute for International Economics that he keeps a jar in his office labeled "transitory," and anyone who uses the word has to deposit a dollar in it.

The hope among economists that the approval of three U.S. vaccines against Covid-19 would quickly put an end to the pandemic and fully open the economy has faded as more Americans refuse to get an inoculation, even as infections from the Delta variant surged. That prompted forecasters from Wells Fargo, Goldman Sachs, and Fannie Mae to reduce their estimate for GDP growth this year.

Fannie Mae, the largest securitizer of U.S. mortgages, began the year citing vaccine distribution as the reason for its estimate of 6.7% growth in GDP in 2021. With vaccine uptake in the U.S. stalled at just over half the population, Fannie Mae last month cut its projection to 5.4%.

The downward revision reflected "the persistence of supply chain disruptions and labor market tightness that are, in part, due to continuing COVID-19 dynamics, pushing more of our growth projection into a later time frame," Fannie Mae said. "Although we expect these constraints to lessen over time, they are likely to drag significantly on economic activity well into 2022 and exert additional upward pressure on prices."

About 57% of the U.S. population is fully vaccinated, according to Bloomberg's Vaccine Tracker, putting it behind 62 other nations including Canada, where the share is 72%, the UK, where it's 68%, Spain, where it's 80%, and Portugal, where it's 85%.