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All our theories about high inflation being temporary have turned out to be wrong

US consumer prices remained stubbornly high in September, according to latest inflation report
Food prices are still on the rise. 
Food prices are still on the rise. 
Photo: Lucy Nicholson (Reuters)
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US inflation rose more than expected in September, dashing hopes that the Federal Reserve will slow down its interest rate hikes.

The US consumer price index rose 8.2% over the last year, and 0.4% on the month, topping the 0.3% forecast by economists. Excluding food and energy, it was up 6.6% on the year and 0.6% on the month.

Experts have been predicting a slowdown in inflation for months, arguing that prices would come down after temporary shocks—from pandemic-related supply chain snags to Russia’s invasion of Ukraine—were ironed out. But even as the economy gradually recovers from these disruptions, inflation hasn’t eased much.

The price of goods cooled off, a bright spot in the report. But service prices rose, a cautionary tale of focusing on any one single component to gauge where inflation is headed.

“If we know the whole is bad, and some things are OK, that tells us that there must be some other things that are even worse,” said Justin Wolfers, an economist at the University of Michigan, during a Twitter Live event.

Here’s a look at how inflation predictions have matched up with reality.

Costs of appliances

Prices for appliances and furniture spiked at the start of the pandemic as Americans hunkered down at home, pulling up overall inflation. Those prices have come down as life returns back to normal, but inflation keeps rising, albeit at a slower pace.

Used car prices

Used cars became the poster child for the pandemic-induced mismatch between supply and demand. Carmakers produced fewer cars because of covid lockdowns and trouble getting parts including semiconductor chips. By the second year of the pandemic, Americans were ready to get on the road. Because new cars were rarely available, they bought used, resulting in skyrocketing prices.

Though they remain at record highs, used car prices are now on their way down. Overall inflation, though, is still moving in the opposite direction.

Energy prices

Energy prices shot up after Russia’s invasion of Ukraine, pinching Americans’ budgets for months. The expectation was that inflation would slow down once oil prices dropped—which they have, dramatically. But that hasn’t been enough for overall prices to fall.

The cost of housing

Some economists are now pointing to rent prices as a temporary source of inflation that will subside.

The cost of housing remains high after the surge in demand triggered by the pandemic, though analysts are expecting the market to cool off due to higher mortgage rates.

That might be the case. Also a possibility: That rising prices for another CPI component offset any drop in housing costs.