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Mixed US CPI in Sep: Inflation Cooling Path Still Rocky
Nick Timiraos, a renowned financial journalist known as the "new Fedwire," wrote that the mixed US September CPI inflation report continues to show a bumpy road for cooling inflation.
The latest CPI report on Thursday showed that the US September CPI exceeded expectations across the board, rising by 2.4% year-on-year, the lowest since February 2021, slower than the previous value of 2.5%, but higher than the expected value of 2.3%; it rose by 0.2% month-on-month, equal to the previous value, and higher than the expected value of 0.1%; the core CPI rose by 3.3% year-on-year, with expectations and previous values at 3.2%; it rose by 0.3% month-on-month, with expectations at 0.2%, equal to the previous value, and the highest since March.
Timiraos pointed out that the September CPI report is the last CPI report before the 2024 US presidential election and one of the last few important inflation reports that people will see before the election. The challenge for the US Democratic Party is that they want to take credit for the significantly vibrant US economy on the one hand, and on the other hand, they have to deal with public dissatisfaction with rising prices.
The US inflation rate has returned to the level after President Biden took office. However, although the inflation rate has cooled, it has not been warmly welcomed by many Americans because the prices of all goods such as groceries, restaurant meals, housing, and insurance are still far higher than they were four years ago.
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The latest data highlights the above contradiction. The inflation rate continues to decline along a very unbalanced path, making it difficult for Federal Reserve officials and economists to fully believe that high inflation has been curbed.
The Thursday CPI report is the first of three inflation data that Federal Reserve officials will see before the next meeting. Timiraos said that preliminary estimates show that the Federal Reserve's preferred inflation indicator - the core personal consumption expenditure price index - will rise less in September than the CPI. On Friday, the US Department of Labor will release the September PPI data, and economists expect the inflation rate to slow down slightly compared to August.
Timiraos cited comments from Ryan Sweet, the chief US economist at Oxford Economics:
This is disappointing. The process of inflation rate decline and moving towards the Fed's target will be bumpy.
There are some special cases, such as the rise in prices of sports events and college textbooks.
After the release of this CPI report, the inflation outlook has not really changed. The labor market does not seem to pose a significant upward risk to inflation.Timiraos cited Atlanta Fed President Bostic. Bostic stated that he had long anticipated monthly fluctuations in economic data, which could complicate the identification of underlying trends. However, the latest data did not alter his expectation that the Federal Reserve would need to implement a series of rate cuts next year:
I have been saying that we should expect some volatility in the data—I have been using the word "unstable." We might receive unstable reports from time to time. But the question is, do they signal a new trend?
Bostic voted in favor of the substantial 50 basis point rate cut last month, at which meeting he anticipated an additional quarter percentage point rate cut for this year. Bostic recently remarked on Thursday that, based on the economic outlook, he believes it would be reasonable to cut rates at both of the remaining meetings this year or at one of them, but the recent mixed data suggest that "perhaps we should pause the rate cuts in November. I am absolutely open to that."
Investors anticipate that the Federal Reserve will lower rates by a quarter percentage point at the next meeting, following last month's substantial half percentage point rate reduction. The dot plot released at the September FOMC meeting indicated that most officials expect two more quarter percentage point rate cuts this year. The Federal Reserve has two more meetings this year.
Timiraos noted that investors have been reevaluating the pace of Federal Reserve rate cuts, as recent labor market data suggest that the U.S. economy may be stronger than anticipated. Although investors still believe that the Federal Reserve will cut rates at the remaining two meetings this year, they now think that the pace of rate cuts next year and the overall magnitude of the rate cut cycle will be less than expected a few weeks ago.
Also on Thursday, the U.S. Department of Labor reported that the number of Americans filing initial unemployment claims last week rose to the highest level in over a year. While this may reflect the impact of Hurricane Ian, it adds a cautionary note to other data showing very low levels of layoffs. Following the unexpectedly strong non-farm employment report released last Friday, U.S. stocks rose.
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