Surging prices show the Fed must continue its tough battle against inflation By Alicia Wallace, CNN Business

Minneapolis CNN Business — A key inflation report showed consumer prices came in hotter than expected in September, punishing Americans and giving license to the Federal Reserve to maintain its pace of historic rate hikes.

On a monthly basis, overall consumer prices increased by 0.4% from August, data released Thursday by the Bureau of Labor Statistics showed. Economists had projected that the monthly figure would rise by 0.2%.

On an annual basis, prices rose by 8.2% in September, a slower increase than the 8.3% rise seen in August, according to the Consumer Price Index, which measures the changes in prices for a basket of consumer goods and services. Economists had projected the pace of price increases would slow to 8.1% last month.

Core CPI, which strips out the volatile food and energy categories, measured a 6.6% increase in September year over year, reaching a level not seen since August 1982.

The month-to-month core reading showed prices rose 0.6% in September, matching August’s increase of 0.6%, a number that surprised investors and triggered a market meltdown as fears grew that persistent inflation would prompt even more aggressive action from the Fed.

“Inflation has kind of become like a cancer,” said Christopher S. Rupkey, chief economist of FwdBonds. “It started in one area of the economy, and now it’s spread rapidly, infecting other areas of the economy. … and it’s spreading to services, where it’s going to be much more persistent, much more stubborn, much more difficult to bring those prices back down,” he said, citing the cost of a haircut, which is unlikely to fall in the same way as goods prices do.

The core change in price for services, not including energy, increased 0.8% in September from the previous month, the highest monthly gain in three decades, BLS data shows. Shelter prices were up 0.7% in September and 6.6% annually.