U.S. inflation rate cools to 8.2%, but core prices still trending in wrong direction — up

The official U.S. inflation rate inched down to 8.2 per cent last month, its lowest level since February.

The Bureau of Labor Statistics said Thursday that prices for food, shelter, car insurance, home furnishings and medical care increased during the month, but a five per cent drop in the price of gasoline was enough to drag the overall inflation number down slightly.

Economists had been expecting the inflation number to come down by even more, to 8.1 per cent. That's after it topped nine per cent in June, the highest figure in more than 40 years.

While the slowdown in the headline figure will come as welcome news to policy makers trying to wrestle inflation into submission with rate hikes, a closer look at the data shows that underlying prices are still going up at a troubling pace.

So-called core inflation, which strips out volatile items like food and energy, inched up to 6.6 per cent. That's the highest level for the core rate since 1982 and still more than triple what central bankers at the Federal Reserve want to see, Desjardins economist Royce Mendes noted.

Core inflation rising suggests the Fed's five rate hikes haven't done enough to tame it, which means people should expect even more to come — painful though it may be.

"The Fed was already set to raise rates sharply over the next few months," Mendes said. "However, today's surprise will likely see Fed officials guiding markets towards at least back-to-back 75-point rate increases in November and December."

Economist Katherine Judge with CIBC says that outside of cheaper gasoline, there wasn't much evidence that prices were actually declining last month.

"While Americans continued to save on gasoline in September, fortunes have shifted in October, as the OPEC+ announcement to cut production has resulted in higher gasoline prices, leaving less money for spending elsewhere," she said. "With no signs of a levelling off in food prices, as the labour shortage in the transportation sector and extreme weather conditions continue, total monthly inflation is set to accelerate further in October."