Inflation Roars Back To 13-Year Highs In September As Oil, Energy Prices Surge; Stocks Retreat

Consumer price inflation returned to the highest levels in more than a decade last month as oil and energy prices added to the Fed's complications heading into the final months of the year.

U.S. consumer price inflation accelerated again last month, data from the Bureau of Labor Statistics indicated Wednesday,  as surge in crude oil and energy prices continues to test the Federal Reserve's insistence that pressures will ease into the early part of next year.

Headline CPI for the month of September was estimated to have risen 5.4% from last year, up from the 5.3% pace in August and near to the highest levels since 2008. On a monthly basis, inflation was up 0.4%, the BLS said, with both tallies coming in below Wall Street forecasts.

So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.2% on the month, and 4% on the year, the report noted, matching both last month's reading and the Street consensus forecast.

The data may complicate the Federal Reserve's plans to begin slowing the pace of its $120 billion in monthly asset purchases -- the first of many steps before a likely September 2022 rate hike -- as domestic growth forecasts slow and job creation wanes.

"When it comes to Federal Reserve policy, there is still plenty of uncertainty, especially heading into 2022, as Chair Jerome Powell's term expires and the possibility of a new Federal Reserve Chair and new members could put the central bank on a different path in terms of monetary policy," said Nancy Davis, founder of Quadratic Capital Management and portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) - Get Quadratic Interest Rate Volatility & Inflation Hedge ETF Report

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"If the recent pace of elevated inflation continues, that could push the Fed to start removing accommodation sooner rather than later, which could hurt stocks and other risk assets," she added. "Investors should also be aware of stagflation risk, which is a combination of inflation with slow economic growth and the market reaction to stagflation is not typically favorable to investors, as many asset classes tend to fall in value at the same time during stagflation."

U.S. equity futures traded lower immediately following the data release, with futures contracts tied to the Dow Jones Industrial Average indicating a 40 point opening bell decline and those linked to the S&P 500 priced for a 7 point move to the downside.

Benchmark 10-year U.S. Treasury bond yields, meanwhile, edged lower to 1.577%, while the dollar index was marked 0.1% lower against a basket of its global peers at 94.433.

Around 4.3 million people left their jobs in the final month of the summer, according to the Bureau of Labor Statistics monthly Job Opening and Labor Turnover (Jolts) report, underscoring the challenges employers face in a tight labor market heading into the crucial holiday season.

The broader headline figure from the Jolts report, typically published one month in arrears, showed unfilled positions slipped from the record high of 11.098 million recorded in July to around 10.4 million in August, just prior to the expiration of extended unemployment benefits over the first weekend in December.

The benefit expiration, however, as well as improving vaccination rates and rising wage offers, have failed to tempt Americans back into the job market, with just 429,000 net new positions created over the past two months, easily the slowest gains for the year, although the BLS has noted that "pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns."