September CPI: Inflation Inches Higher, Putting the Labor Market on Hold

September CPI: Inflation Inches Higher, Putting the Labor Market on Hold

The September Consumer Price Index Report signals rising inflation. Prices for all urban consumers rose 3.7% over the past year, with a 0.6% jump from August. 

Inflation is a tax on every paycheck and every payroll. When costs climb this fast, households pull back, employers hold off on hiring, and workers stay put. That’s how higher prices turn into a stalled labor market.

Why prices are staying high

Gasoline remains the main driver as the war with Iran continues. It accounted for half of the monthly increase and is up 9.1% from August and 34.2% from a year ago. But energy costs don’t stay at the pump. When fuel stays expensive, everything that moves through the economy gets a higher price tag. The signs of spillover are already here: prices excluding food and energy rose 2.6% from a year ago, faster than the 2.4% reported in August.

Why it challenges the Fed

The Fed faces an uphill fight. Shelter inflation rose 0.4% from August and is likely to climb further. With mortgage rates well above 7%, many households are priced out of ownership and pushed into the rental market, which adds to rent pressure and adds to owners’ equivalent rent, the main calculation in shelter inflation. That makes it harder for the Fed to ease up, even as higher borrowing costs weigh on the economy. A quick win against inflation is not in the cards.

What it means for consumers and businesses

Consumers are squeezed by higher costs for fuel, housing, and everyday goods while wage growth continues to stall, adding to their financial concerns. Businesses face higher input and transportation costs while their customers pull back, leaving neither side much room to absorb the pressure.

What it means for the labor market

Higher rates and higher prices dim the labor market outlook. Employers pull back when conditions get tough, and workers, already clinging to their roles, are in no position to make a move. Expect more of the low-churn market through the rest of the year, with hires and quits near their lows as both sides wait for better conditions.

Check out our BLS earnings dashboard to see more about the struggles workers are facing as prices rise and wages cool.