Economic Update 10/14/26

Top Five Takeaways

·         The CPI (Consumer Price Index) for the month of September showed an increase of 0.6%.

·         On a year-over-year basis, the CPI was up 3.7% in September.

·         The primary contributor to the rise in inflation for the month was gasoline prices, which rose more than 9%.

·         The above numbers continue to raise concerns that inflation pressures are not peaking.

·         Reaction to today’s numbers are showing increased expectations for at least one more rate increase in the Fed Funds Rate by year-end.

The inflation numbers we saw released this morning are certainly adding to investor concerns regarding additional interest rate increases by The Federal Reserve.

September CPI Increase

The CPI (Consumer Price Index) for the month of September showed an increase of 0.6%. While this was primarily in line with forecasted levels, it was a definite spike up from the 0.4% number seen in August. This also marks the highest increase since April of this year.

The primary contributor to the rise in inflation for the month was gasoline prices, which rose more than 9%. Energy costs, in total, were up 5.2%. Surprisingly, food prices were flat during September. On a year-over-year basis, the CPI was up 3.7% in September. Again, this exceeded the 3.4% rise recorded the prior month.

Core CPI Increase

The release of the Core CPI, ex-food and energy, showed a rise of 0.3% during September. This matched the level recorded for August but slightly above the 0.2% forecasted increase. The two primary contributors to the inflation gains for the month were shelter and transportation  services. On a trailing twelve-month basis, the Core CPI rose by 2.6%. This exceeded the August increase of 2.4%, which actually had represented a five-year low for this measurement. Two major contributors to this level of inflation were airline ticket increases and education costs.

Rate Increase Potential

The above numbers continue to raise concerns that inflation pressures are not peaking and added pressure is being put on The Fed to again raise rates. We will have the PPI (Producer Price Index) releases tomorrow. This is somewhat more forward-looking but the immediate reaction to today’s numbers are showing increased expectations for at least one more rate increase in the Fed Funds Rate by year-end. I would not be surprised to see The Fed make the increase at their next meeting during the last week of this month.

Given this outlook, we are seriously considering reducing our equity holdings one more time prior to the meeting. You might recall we did this before their last increase in September, and it worked to the advantage of our client portfolios.

Stay tuned for our next update and possible actions regarding our holdings.