The Bureau of Labor Statistics reported on Thursday that the consumer price index increased 8.2% from a year ago in September, compared with economists' expectations of an 8.1% rise, according to financial data firm FactSet Research Systems.
Excluding the volatile food and energy sectors, the core CPI rose by an annualized 6.6% in September.
The overall CPI figure for September was slightly lower than the 8.3% annualized increase reported in August and fell below the 8.5% annual increase reported in July and the 9.1% annual jump recorded in June (which was the highest such annual increase since November 1981).
While energy prices dipped by 2.1% in the month of September, energy prices have still surged by 19.8% over the 12-month period through September. Moreover, food prices edged up a modest 0.8% in September but have jumped by 8.2% over the past 12 months.
The Federal Reserve has been committed to tamping down inflation, having raised the benchmark federal funds rate by 75 basis points at each of its last three consecutive meetings. The central bank next meets on November 1-2.
According to the CME Group's FedWatch tool, as of Thursday morning, market participants' pricing of Fed Fund futures indicates there is an 97.8% probability that the Fed will increase rates by another 75 basis points at the November meeting, and a 2.2% probability that the Fed will increase rates by 100 basis points.
The Fed Funds rate is currently in a range between 3% and 3.25%.
Anders Persson, the Charlotte, N.C.-based chief investment officer of global fixed income at Nuveen, said by email that in response to the September CPI data, the Fed is going to "remain hawkish and we continue to expect a 75 (basis point) rate hike at next month's meeting."
In the more medium term, he noted, "we think the risks remain skewed toward the Fed hiking by more than markets currently discount. This will continue to be a headwind for institutional investors, as fixed income returns will be pressured amid rising rates." However, Mr. Persson added that the good news is that "higher yields will boost returns in the future, and we think entry points will be attractive later this year."
Nuveen's AUM amounted to $1.1 trillion as of June 30.
Mark Giambrone, Dallas-based senior managing director and equity portfolio manager-analyst at Barrow Hanley Global Investors, said Thursday's inflation report is "bad news for the markets and worse news for the Fed and its inflation fight."
It will mean that a Fed slowdown in rate increases at this point "will be much more difficult and the ultimate end rate may be higher than what the market has been predicting," he noted.
For institutional investors, Mr. Giambrone added "it means that risk assets and growth areas of the market are going to continue to be under pressure as well as rising yields impacting fixed income, while active and value equities should continue to do well relatively."
Barrow Hanley had AUM of $43.3 billion as of June 30.
David Norris, New York-based partner and head of U.S. credit at TwentyFour Asset Management, a fixed income boutique of Vontobel Asset Management, characterized the CPI data as "disappointing" and suggested that institutional investors should "look to remain defensive in posture, investing in higher credit quality while keeping duration short."
TwentyFour had AUM of $23.6 billion as of August 31.
