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The recent increase in US inflation is not as bad as it seems

The recent increase in US inflation is not as bad as it seems

In September, consumer prices in the United States rose more than anticipatedagain. The consumer price index (CPI) rose by 0.4% from August, beating the 0.3% increase predicted by economists. Its part of a 5.4% increase over the past 12 months.

Rising summer prices fueled fears that inflation might spiral out of control, with some arguing that price increases in one industry may cause higher prices in others. Other inflation observers, including the US Federal Reserve, claim that prices will rise as the epidemic subsides, despite the fact that they admit that it hasnt happened as quickly as they expected.

The September numbers do not resolve this issue, but they do indicate that there is no reason to be concerned yet. The items whose prices sparked inflation fears over the summer were considerably cheaper in September. And what's fueling inflation right now are mainly goods and services that are normally fairly volatile.

Food and energy bounce around.

Food, energy, and rent, which spiked September prices, fueled the increase. Food and energy are notoriously volatile, which is why economists focus on core inflation, who takes them out. That figure increased by 0.2%, which is higher than Augusts usual 0.1% increase, but still remains low.

The rise in rentsthey were up 0.5% in September, compared to a 0.3% increase the month beforeis perhaps more worrying. Increases in housing prices are more stringent, and because the category accounts for up to 40% of the weighted basket of prices that make up the core inflation figure, it has a huge negative impact on the overall figure.

Still, Septembers higher rents may be a sign that landlords are finally able to raise prices after months of epidemic-related delays. While listed rents or new house prices may rise or fall a lot, most of us dont change houses every day or every month, so most people are still paying the same for housing as they were yearly, said Jay Shambaugh, director of the Institute for International Economic Policy at George Washington University.

He claims that higher rents are only cause for concern if they continue to rise at Septembers rate for several months.

Flights and cars became more affordable as flights and automobiles became less expensive.

The September CPI report also suggests that the economy is coping with epidemic-induced shocks that have pushed prices of some goods up. A semiconductor shortage that slowed new car production in the summer boosted used car prices to new highs. As more vaccinations arrived at airports, air tickets for flights increased in price. But prices for both of those items have been dropping in recent months, reducing their contribution to inflation.

In September, airfares dropped by 6.4% compared with the previous month, while used vehicle prices fell by 0.7%.

The long-term outlook on inflation is uncertain.

Given how rapidly the inflation picture is changing, Shambaugh says he doesnt believe price increases will disappear or spiral out of control. Back in June, he noted that inflation was at alarming levels. I thought, it might calm down, though, he said. It looks like its settled down, but on the other hand, it may be able to re-start, he added.

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