US consumer prices the highest rate in 40 years
The headline rate fell back slightly in September, from 8.3% to 8.2%, but the more telling measure of core inflation, which excludes the cost of food and energy, reached the highest rate in 40 years, rising from 6.3% to 6.6%.
The message was clear: Far from relaxing its recent pace of monetary tightening, the Fed might have to raise interest rates faster and further than expected.
The headline rate has probably peaked, but high underlying inflation is getting entrenched and spreading more widely.
The Fed needs to worry about hitherto unsuspected fragilities in a financial system that has gotten used to year after year of virtually zero-cost credit.
This makes the Fed’s preference for gradualism understandable — and, for the moment, wise.
Bloomberg editorial 17 October 2022
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