(The Hill) — Inflation accelerated again in September, defying the expectations of economists and lingering at the highest levels in decades.

Despite rapid rate hikes by the Federal Reserve, an unraveling global economy and slowing U.S. growth, prices have kept rising at rapid rates. 

Prices rose 0.4% in September, according to consumer price index (CPI) data released Thursday, marking the second straight month of accelerating inflation. The annual inflation rate dropped slightly to 8.2%, but remained near levels not seen since the 1980s.

Here are five reasons why inflation keeps rising even as the economy slows.

A strong labor market

The U.S. has added jobs at a rapid pace throughout 2022 as businesses struggled to fill a record number of open positions. The combination of historically high job openings, steady consumer spending and federal stimulus gave workers leverage in the job market.

As a result, millions of Americans were able to find better work for higher pay two years after the onset of the COVID-19 pandemic claimed 21 million jobs. But the shortage of jobseekers had forced business to boost wages — and in some cases, prices.

As the Fed hikes interest rates, economists expect the job market to weaken and eventually force inflation down as fewer households can afford to keep up their spending.

“The labor market is holding steady for now, but high inflation and rising interest rates are influencing both business and worker behavior,” wrote ZipRecruiter lead economist Sinem Buber in a Thursday analysis.

“As the costs of essentials rise, consumers may have less discretionary income to spend on big-ticket items and luxuries.”

Housing shortage drives prices higher

A national shortage of affordable housing is putting pressure on American budgets and weighing heavily on inflation figures. The recovery from the COVID-19 recession has only made it worse.

Shelter costs rose 0.7% in September alone and 8% over the past year as rents rise throughout the U.S. and Fed rate hikes push more Americans out of the housing market.

While the Fed intends to slow activity in the housing sector by jacking up mortgage rates, the resulting slowdown in home sales has forced would-be homebuyers into a crowded rental market, where the number of affordable apartments and rental homes has long fallen short of demand.

“The key swing story is going to be shelter … given it is the largest component of inflation,” explained James Knightley, chief U.S. economist at ING.

The slow healing of supply chains

Supply chains are far less stressed now than they were in 2021, when successive waves of COVID-19 variants, lockdowns in China, shipping backlogs, material shortages and a glut of new spending added fuel to inflation.

Inventories are rising, delivery times are more prompt and consumers are shifting their spending away from goods in scarce supply.

But experts say manufacturers, suppliers and transporters are still working through the scarring from years of deepening supply strain stress and keeping prices higher because of it.

“Some commentators have claimed that inflationary supply chain dynamics have already eased but this characterization still seems premature,” wrote Skanda Amarnath and Alex Williams of Employ America, a research nonprofit.

“Delivery times may no longer be increasing at a historic pace, but they still remain at historically elevated levels. We still have yet to see sustained compression in delivery times that would be indicative of a healing supply chain,” they continued.

Whipsawing gasoline and energy prices driven by the war in Ukraine have also put pressure on suppliers and added uncertainty to their outlooks, especially as the world braces for prices to rebound over the winter.

Stubborn profit margins

Businesses are facing higher costs for both supplies and labor thanks to a mix of shortages and higher consumer demand.

However, the increased prices for some goods and services seem to be much higher than the growth of wages for the workers involved and the price of raw materials, according to some economists and policymakers.

Fed Vice Chairwoman Lael Brainard argued in a Tuesday speech that sales margins in the automobile and retail goods sectors are running much higher than they should be, given the costs suppliers and producers are facing. 

In other words, she argued, businesses are charging more than they theoretically should be for certain products.

“The return of retail margins to more normal levels could meaningfully help reduce inflationary pressures in some consumer goods, considering that gross retail margins are about 30% of total sales dollars overall,” Brainard said.

“There is ample room for margin recompression to help reduce goods inflation as demand cools, supply constraints ease, and inventories increase.”

Lagging impact of rate hikes

Though the economy has slowed since the Fed began raising interest rates, most economists believe we haven’t even seen the beginning of the impact higher borrowing costs will have on the economy — let alone inflation figures.

“It normally takes between 12-18 months for changes in monetary policy to start to have a pronounced impact on inflation and the economy. The Fed has been raising interest rates for less than nine months, and aggressively so for less than six months, so the delayed impact on prices is not unexpected,” wrote Cailin Birch, global economist at the Economist Intelligence Unit, in a Thursday analysis.

Some experts fear that the Fed’s insistence on raising rates even further at upcoming meetings in November and December could be a devastating mistake, particularly as some supply-driven sources of inflation continue to ease.

It can often take several months for price reductions in the real economy to show up in CPI data, meaning the Fed may overshoot inflation without realizing it at the time.

“The greater danger now is that policymakers are ignoring clear evidence that inflation pressure is fading, and are instead waiting for lagging indicators—the inflation data themselves—to give the all-clear,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a Thursday analysis.