Inflation is no longer accelerating, but it’s not showing clear signs of declining from recent peaks either.

US consumer prices at the headline level edged up to a 5.4% year-over-year rate in September, a 13-year high, the Labor Department reports. That’s slightly above the 5.3% pace in the previous month. Core CPI, which strips out food and energy prices and is thought to be a better measure of the trend, held steady at a lower 4.0% rate. That’s below June’s 4.5% peak, but core consumer inflation is still running close to the hottest pace in 30 years, which is to say far above the pre-pandemic trend.

In the wake of yesterday’s report, the “inflation is transitory” argument that the Federal Reserve has been pushing remains challenged. Although it appears that pricing pressure has stabilized, it’s stabilized at a substantially higher level. The question is how long inflation holds at current levels?

A new run of the Inflation Trend Index (ITI), which offers a multi-factor profile of pricing behavior, suggests that inflation will continue to run hot for the near term. ITI isn’t designed to forecast the government’s inflation metrics; rather, it provides forward guidance on the directional bias of pricing activity overall in real time. On that basis, ITI’s current estimate for October points to pricing pressure holding steady at the 5% mark, unchanged from September. For November, the model is currently projecting a dip to 4.7%.

Monthly changes for ITI through October continue to show a relatively contained, stable profile after the surges recorded earlier in the year. That’s a clue for thinking that the inflation pressures are easing.

But let’s recognize that inflation that stabilizes at an elevated level still presents challenge for the economy and monetary policy. Hotter inflation that stays hot is a headwind for growth and a factor that pressures the Federal Reserve to start tightening policy earlier than expected, and perhaps more aggressively than expected. A substantial deceleration in the inflation trend would alleviate this pressure, but for the moment that appears to be a low-probability outcome for the near term.

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