People shop in a supermarket as inflation affected consumer prices in Manhattan, New York City, U.S., June 10, 2022. REUTERS/Andrew Kelly

US consumer prices increased more than expected in September and underlying inflation pressures continued to build up, reinforcing expectations that the Federal Reserve will deliver a fourth 75-basis points interest rate hike next month.

The consumer price index rose 0.4% last month after gaining 0.1% in August, the Labor Department said on Thursday. Economists polled by Reuters had forecast the CPI climbing 0.2%.

In the 12 months through September, the CPI increased 8.2% after rising 8.3% in August. The annual CPI peaked at 9.1% in June, which was the biggest advance since November 1981.

Despite the continued moderation as supply chains ease and oil prices retreat from the highs seen in the spring, inflation is running way above the Fed’s 2% target.

Gasoline prices have likely bottomed following last week’s decision by the Organization of Petroleum Exporting Countries and allies to cut oil production. Russia’s war against Ukraine poses an upside risk to food prices.

Stubbornly high inflation and a tight labor market allow the US central bank to maintain its aggressive monetary policy stance for a while. The government last week reported solid job growth in September, with the unemployment rate falling back to a pre-pandemic low of 3.5% from 3.7% in August.

Financial markets have almost priced in another three-quarters of a percentage point rate increase at the Fed’s Nov. 1-2 policy meeting, according to CME’s FedWatch Tool.

The Fed has since March hiked its policy rate from near zero to the current range of 3.00% to 3.25%. Minutes of the Fed’s Sept. 20-21 meeting published on Wednesday showed policymakers “expected inflation pressures to persist in the near term.”

Excluding the volatile food and energy components, the CPI climbed 0.6% in September after rising 0.6% in August. The so-called core CPI jumped 6.6% in the 12 months through September. The core CPI rose 6.3% year-on-year in August.

Underlying inflation is being largely driven by higher costs for rental accommodation. Government data on Wednesday showed the weakest reading in producer core goods prices in nearly 2-1/2 years in September. The pass through from producer to consumer inflation could, however, probably take a while.

Some of the inflation pressures are coming from the tight labor market. A second report from the Labor Department on Thursday showed the number of Americans filing new claims for unemployment benefits increased moderately last week. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 228,000 for the week ended Oct. 8.

Economists had forecast 225,000 applications for the latest week. The labor market remains tight. There were 1.7 job openings for every unemployed person on the last day of August, and layoffs also remain low.

The Fed’s September meeting minutes also showed policymakers “anticipated that the supply and demand imbalances in the labor market would gradually diminish,” and “that the transition toward a softer labor market would be accompanied by an increase in the unemployment rate.”