Inflation update: Core CPI, online grocery prices hit new highs

Core inflation reached a new 40-year high.

For the US economy as a whole, inflation rose 8.2% year-over-year in September, according to the latest reading of the Consumer Price Index (CPI) from the US Bureau of Labor Statistics.

That’s only a slight cooling from the 8.3% increase reported in August.

On a monthly basis, inflation rose 0.4%, which was up from the August increase of 0.1%.

This year has delivered many 40-year-highs for the CPI, and September added another to the record books: The core inflation rate, which excludes the more volatile food and energy prices, was 6.6% on an annual basis. That's the highest since 1982. Core inflation for services, excluding energy, rose 0.8%, and 6.7% year-over-year. The yearly figure was also the sharpest growth since 1982, according to the Wall Street Journal.

Like the August report, September's data showed a new evolution of inflation that is pushing price increases deeper into the economy, beyond elevated gas prices that drove the spike for many months. In fact, the gasoline index fell 4.9% for the month, following a 10.6% decrease in August.

Meanwhile, food, shelter and medical services were among the largest drivers of the inflation growth. The owners’ equivalent rent index rose 0.8% for the month, which was the largest monthly increase since June 1990. Food at home inflation also ticked up again to 13% year-over-year, as all of the grocery categories rose. Among other popular ecommerce categories, cosmetics and personal care products prices rose 0.4%, while toys rose 0.8%. Pet products were up 0.9% for the month, and rose 11.1% annually.

There were only a few declines noted for the month. Apparel prices declined 0.3% for the month, while sporting goods and used car prices fell 1.1% for the month.

Ecommerce inflation is a mixed bag.

When it comes to online prices, the story was less definitive. According to the Adobe Digital Price Index, ecommerce prices in September fell 0.2% year-over-year, but they rose 0.8% on a monthly basis.

This continues an up-and-down picture for ecommerce inflation, which is more focused on goods than the CPI, which includes services and essentials like rent and healthcare. In July, Adobe’s data showed that prices had entered deflation for the first time in 25 months. However, in August, prices ticked up again to a 0.4% annual increase.

A further breakdown shows that 11 of the 18 categories recorded price increases year-over-year. Rising food costs are one of the biggest influences in the digital realm, just as they are in the overall economy. Here's a look at the biggest movers:

• Online grocery inflation reached a new record high of 14.3% year-over-year, which was the largest increase of any category. Prices in this category have risen for 32 straight months.
• Pet products were up 11.8% annually, despite only rising 0.01% for the month. It’s the 29th straight month of inflation in this category.
• Apparel saw another big spike, up 6.6% month-over-month, and 4.7% year-over-year.
• Electronics prices fell, with a decrease of 11.3% year-over-year that was sharper than both July and August. This category is the largest for ecommerce, accounting for 18.6% share in 2021. Prices have been falling since December 2021.

Wholesale prices continue to rise, too.

A look ahead to the prices goods and services that are being paid to producers before they reach retail shows inflation is rising upstream for the first time in three months, as well.

The Producer Price Index rose 0.4% on a monthly basis in September. This comes after falling 0.2% in August, and a decline in July. The PPI rose 8.5% on an annual basis, the Bureau of Labor Statistics reported. That yearly increase cooled off slightly from an 8.7% increase in August.

Excluding food, energy and trade services, wholesale prices rose 0.4% for the month and 5.6% annually.

Two-thirds of the PPI's increase was attributed to a rise in services prices. Prices for goods rose 0.4% in September on a monthly basis, with 60% of the increase owed to a rise in food prices. This comes after the prices for goods decreased 1.1% in August.

In all, food PPI increased 10.2% year-over-year, running higher than overall prices. High fuel costs are also continuing to have an impact on the CPG industry, which accounts for one-fifth of all freight transportation, according to the Consumer Brands Association, which represents consumer packaged goods companies. Diesel fuel was up 65.9% year-over-year in September.

The PPI tends to be forward-looking, but there are some key events that have yet to show up in these reports. For instance, the PPI does not account for last week's decision by the nations that are part of OPEC+ to cut oil production by two million barrels a day. That could result in gas prices ticking back up.

“September showed ongoing cost pressures and the impact of supply chain disruptions from Hurricane Ian, renewed fears of a rail strike and oil prices that have yet to surface in the data,” said Katie Denis, vice president of communications and research at the CBA, in a statement.

Outlook: The heat is still on.

In all, the inflation data continues the story that has been persisting this year: Prices are rising, with the most notable spikes in the essential categories. Gas has been replaced by food and rent as the key driver, but the result is likely to be the same: After spending more on the survival items, consumers will be looking to stretch dollars for discretionary purchases.

It sets up what retail CEOs have been predicting to be one of the more promotional holiday seasons in memory. Broad-based price increases show inflation is digging deeper into the economy, and wholesale inflation shows it likely won’t slow down.

At the same time, the Federal Reserve has said it plans to continue to hike interest rates to bring down inflation to 2% "until the job is done," as Chairman Jerome Powell has repeatedly put it. This report indicates there’s still a long way to go on that front. But as the Federal Open Market Committee considers its latest in a series of big rate increases this month, it will have to weigh the effects of cooling demand on the health of the economy as a whole. Minutes from the September meeting showed that committee members were committed to sticking with rate hikes with inflation “showing little sign so far of abating.” Wednesday’s report probably won’t change that mindset. It also shows that, for another month, the rate hikes are not appearing to have taken hold yet.