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Inflation holds grip on the U.S. economy as September rate hits 8.2%

High prices remain top of mind for many Americans in the last quarter of a year marked by across-the-board volatility in food, gasoline and energy costs.

The annual U.S. inflation rate was little changed last month, hitting 8.2% year over year compared with August's 8.3% reading as the pace of price increases remains at multidecade highs, causing pain for many households.

High prices for food, shelter and medical care sent the consumer price index for September up by 0.4%, compared to August's 0.1%, according to data the Bureau of Labor Statistics released Thursday morning.

Markets opened lower following the news as investors tried to gauge how the Federal Reserve will respond.

Inflation remains at the top of Americans' minds going into the last quarter of a year of across-the-board volatility in food, gasoline and energy prices.

While the Biden administration has sought to address the issue through measures like the Inflation Reduction Act, the provisions in that law are set to take effect over 10 years, and at least two separate models predict its actual impact on inflation will be statistically insignificant.

So the burden of bridling a stubborn inflation rate sits at the doorstep of the Federal Reserve. The central bank has already increased its benchmark rate five times this year — which included three consecutive 0.75% hikes — to make borrowing and spending money more expensive to cool off consumer demand.

At its most recent Federal Open Market Committee meeting, Fed officials largely agreed that it was better to aggressively raise interest rates now to avoid economic pain down the road.

The housing market has felt the most immediate impact of the Fed's rate-raising scheme. At nearly 7%, mortgage rates are at their highest levels in close to two decades, which has slowed home price growth in its tracks and caused prices to fall in some cities.

Comerica Bank chief economist Bill Adams said house prices and rents are likely to decline throughout the U.S. in the coming months.

What remains to be seen, he said, is whether other key costs, especially those for food, will also come down. Lowering those expenses might be out of the federal government's hands, he said.

"There's definitely still a Russia-Ukraine effect keeping food prices elevated," he said. "Commodities futures prices for grain have been high since the start of the Russian invasion."

Food costs also reflect higher energy costs, he said, and while gas price declines last month likely affected the headline inflation reading, Adams noted that pump prices have already begun to climb back up amid higher demand. In addition, OPEC+ announced last week it would cut oil production by 2 million barrels a day, which sent crude oil prices to nearly $98 last Friday.

Finally, an apparent shortage of workers has continued to put upward pressure on wages, Adams said. Last month, the unemployment rate hit 3.5%, tying the pre-pandemic low and suggesting most people who want to find work are able to do so while also commanding higher wages.

"Food price inflation is going to stay a problem in U.S. for the next couple of months," Adams said. "Wage growth in the U.S. is considerably faster than it was pre-pandemic, especially in lower-paying occupations like food services."

CORRECTION (Nov. 1, 2022, 5:20 p.m. ET): A previous version of this article misstated the name of a Federal Reserve committee. It is the Federal Open Market Committee, not Federal Open Markets Committee.