Unveiling September 2023 Inflation Breakdown: Analyzing it All in a Single Chart

Inflation remains steady in September, but economists predict a continued gradual decrease in price pressures in the coming months.

The U.S. Bureau of Labor Statistics reported that the consumer price index (CPI) rose by 3.7% compared to the same period last year, the same rate as in August.

This latest reading marks a significant improvement from the peak inflation rate of 9.1% in June 2022 during the COVID-19 pandemic – the highest rate observed since November 1981.

“The rate of decline is uncertain,” said Andrew Hunter, Deputy Chief U.S. Economist at Capital Economics. “However, all the available data suggests that inflation should decrease rather than increase.”

The CPI is a vital indicator of inflation, reflecting the rate at which prices for goods and services in the U.S. economy are changing.

Despite recent improvements, economists believe it will take some time for inflation to return to normal levels.

The Federal Reserve aims for an annual inflation rate of 2% in the long term, a target they do not expect to reach until 2026.

“Inflation remains the most significant economic concern at present,” said Sarah House, Senior Economist at Wells Fargo Economics. “We are making progress [towards the target], but there is still a long way to go,” she added.

In September, gas prices increased by 2.1% on a monthly basis, contributing significantly to last month’s inflation, according to the BLS.

However, this represents a significant improvement from August, when prices at the pump rose by 10.6% primarily due to market dynamics within the crude oil industry.

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“Although gas prices remain a concern for consumers, the increase in September was not as significant as the surge experienced in August,” said House.

Gas prices have also fallen in October, with the average price per gallon at $3.68 as of October 9, down 15 cents from September 25, according to the Energy Information Administration.

When analyzing underlying inflation trends, economists typically focus on a measure that excludes the volatility of energy and food prices.

This measure, known as the “core” CPI, decreased from an annual rate of 4.3% in August to 4.1% in September.

Housing, which is the largest expense for the average household, accounts for over 70% of the overall increase in the core CPI in the past year. Housing inflation increased in September, reaching its highest monthly rate since May.

However, the trend of housing prices is expected to continue declining until approximately summer next year, according to House.

“This will be a significant factor contributing to the overall rate of disinflation throughout 2024,” she said.

Other categories that have experienced notable increases in the past year include motor vehicle insurance (up 18.9%), recreation (up 3.9%), personal care (up 6.1%), and new vehicles (up 2.5%), as reported by the BLS.

At a macro level, global inflationary pressures arise from an imbalance between supply and demand.

Energy prices surged in early 2022 following Russia’s invasion of Ukraine. Supply chains faced disruptions when the U.S. economy restarted amidst the COVID-19 pandemic, resulting in increased prices for goods. Consumers, benefiting from government stimulus and staying home for a year, spent generously. Wages grew at a pace not seen in decades, raising business costs.

Now, these pressures have significantly eased, according to economists.

Furthermore, the Federal Reserve has raised interest rates to their highest level since the early 2000s to cool down the economy. This measure aims to increase borrowing costs for consumers and businesses, thereby curbing inflation.

Average wage growth also declined to 4.4% in September, down from the peak of 9.3% in January 2022, as reported by Indeed data.

“Most indicators suggest that the economy remains strong, although it may be cooling slightly,” said Hunter. “Labor market conditions are gradually cooling as well.”

However, economists note a few potential sources of upward inflationary pressure. For example, the Israel-Hamas conflict could impact global energy prices. Additionally, strikes by United Auto Workers could result in higher car prices due to declining inventory levels.