Consumer prices grew by 0.4 percent in September from August and 3.7 percent on the year, the U.S. Labor Department reported. Dow Jones had estimated 0.3 and 3.6 percent, respectively.

The annual rate was 3.7 percent in August also. 

Core inflation, which screens out food and energy prices, gained 0.3 percent and 4.1 percent, slightly lower than August’s 4.3 percent. The core consumer price index is seen as a better gauge of broad-based inflation.

In the same month, actual hourly earnings slipped by 0.2 percent for the month but were 0.5 percent ahead of the same period last year. Workers had less purchasing power in September than in August but still had more than in August 2022.

Shelter costs accounted for half the rise in the Consumer Price Index, the labor department said, rising 0.6 percent month to month and 7.2 percent annually. Shelter costs make up about a third of the index’s weighting among various factors.

“The shelter component is worrisome,” Agron Nicaj, MUFG’s U.S. economist, said to the Financial Times. “It may be something the Fed needs to observe more closely. They can’t assume it’s on a deflationary path.”

Energy costs perked up 1.2 percent, with gasoline rising 2.1 percent and fuel oil 8.5 percent. Food maintained its 0.2-percent increase for the third straight month. The price of new vehicles rose 0.3 percent; used ones cost 2.5 percent less, month to month.

Used cars, a major driver of inflation in 2021 and 2022, were selling for 8 percent less than a year earlier. Clothing costs dropped 0.8 percent and medical care goods cost 0.3 percent less.

Service costs notched a 0.6 percent monthly gain and 5.7 percent over the previous 12 months. The price of services is seen as a key indicator of trends in longer-term inflation.

Lingering inflation hints that the summer’s sharp slowdown in inflation may have been less than meets the eye, some analysts told The Wall Street Journal.

“That ‘summer of disinflation’ stuff was all about downside surprises,” Omair Sharif, founder of analysis service Inflation Insights, said to the WSJ. “Now there’s a lot of stuff surprising to the upside and that’s the most concerning.”

Unbudging inflation and a surprisingly strong jobs report could persuade the U.S. Federal Reserve to bump up its interest rates another quarter point when it meets at the end of this month. 

A majority of members of the rate-setting Open Market Committee favored a November increase, minutes of the September meeting showed. 

Since then, however, treasury yields—which strongly influence rates for a wide range of loans—have approached multi-decade records. That had persuaded some Fed officials that the central bank may be able to leave rates alone, at least for now.

Now that view may be shifting again.

The new inflation report is “a reminder that restoring price stability will take time,” Susan Collins, president of the Federal Reserve Bank of Boston, said in a statement last week.

TREND FORECAST: With “shelter costs”—up 7.2 percent from a year ago and accounting for up to about one-third of the CPI and the main factor driving up inflation—people are spending more on having a place to live than buying products and services. 

And again, should the Israel and Ukraine wars escalate, so too will inflation as gas, oil, and other commodity prices sharply rise.