US inflation falls but still higher than expected

U.S. consumer prices increased more than expected in September as rents surged by the most since 1990 and the cost of food also rose, reinforcing expectations the Federal Reserve will deliver a fourth 75-basis-point interest rate hike next month.

The report from the Labor Department on Thursday also showed a measure of underlying inflation posting its biggest annual increase in 40 years as consumers also paid more for health care. The data followed on the heels of last week’s strong employment report, which showed solid job gains in September and a drop in the unemployment rate to a pre-pandemic low of 3.5%.

“This is not what the Fed wants to see six months into one of the most aggressive tightening cycles in decades,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

The consumer price index rose 0.4% last month after gaining 0.1% in August. Economists polled by Reuters had forecast the CPI would climb 0.2%.

Food prices increased 0.8%, with the cost of food at home advancing 0.7% amid rises in all six major grocery store food groups. Owners’ equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, shot up 0.8%, the largest increase since June 1990.

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