US Inflation Report Shows 8.2% Price Increase Over September 2021, Despite Fed Rate Hikes

The US dollar has continued to depreciate in value, despite attempts by the Federal Reserve to curb new lending. An increasing number of economists from the Fed to the International Monetary Fund (IMF) are warning that a recession is all but inevitable, regardless of how the central bank reacts.

Prices on US consumer products increased by an average of 8.2% in September 2022 as compared to a year earlier, a Thursday report by the US Bureau of Labor Statistics (BLS) revealed.

The report also showed that prices had increased in September 2022 over the prior month by 0.4%, paralleling a 0.4% rise in producer prices that the BLS reported separately on Wednesday.

The news means the Federal Reserve, the US central bank, can be expected to make another strong increase in interest rates at its November 1 meeting. Since April, the Fed has steadily increased the federal funds rate, which governs how much banks can lend to one another overnight, which is its standard policy tool for combating inflation.

However, the central bank finds itself caught between the vise of the capitalist system: without action, inflation can spiral until economic growth is smothered and the market crashes into a recession; but increasing interest rates also slows down the economy and makes triggering a recession and a rise in unemployment much more likely, too.

Adding to the challenge is that inflation isn’t just being caused by increased shipping expenses or the reduced supply of key commodities such as gasoline: it’s also being driven by fatter profit margins. An April study by the Economic Policy Institute found that corporate profits accounted for 54% of inflation in the United States in the last two years.

On Wednesday, S&P Ratings and the IMF gave separate warnings about the inevitability of a recession in the coming months if US fiscal woes continue, with the IMF bluntly stating that “the worst is yet to come.”

Indeed, the US Department of Commerce reported in July that the US had seen negative economic growth during the first two quarters of the year - the technical definition of a recession. However, Democratic leaders have pushed back, saying that low unemployment, high wages, and a strong stock market suggest the opposite. The entire US House of Representatives and one-third of the US Senate are up for election in November, and Democrats fear losing control of the legislature amid the tough economic headwinds.

However, Federal Reserve data shows that over the course of 2022, a steady decline in New York Stock Exchange (NYSE) indices has erased nearly $10 trillion in wealth since January - equivalent to 43% of the US gross domestic product (GDP).

The Fed’s most recent Summary of Economic Projections last month showed the unemployment rate is expected to rise from its current 3.5% to 4.4% by next year, while US GDP growth is forecast to be just 0.2% for 2022.