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Inflation continued to rise rapidly across the US economy in September, with a new 40-year high in a core measure. Meanwhile, online prices were up on a monthly basis, even as many key ecommerce categories fell. Looking upstream, wholesale prices continued to rise, as well.
Here’s a look at the latest inflation data for September 2022:
Core inflation reached a new 40-year high.
CPI month-over-month change, Sept. 2021-Sept. 2022. (Courtesy photo)
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.
Adobe DPI vs. CPI. (Courtesy of Adobe)
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 productswere up 11.8% annually, despite only rising 0.01% for the month. It’s the 29th straight month of inflation in this category.
- Apparelsaw 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.
Online inflation by category. (Courtesy of Adobe)
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.
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.