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"US Sep CPI Beats Expectations: 2.4% YoY, Core Rises 0.3% MoM"
The deceleration of inflation in the United States has stalled in September, with the overall CPI and core CPI both exceeding expectations.
The U.S. Bureau of Labor Statistics released data on Thursday showing:
The U.S. CPI in September rose 2.4% year-on-year, slowing down from the previous value of 2.5%, but exceeding the expected value of 2.3%, marking the lowest level since February 2021, mainly due to the decline in energy prices; it increased by 0.2% month-on-month, matching the previous value, and exceeding the expected value of 0.1%;
The U.S. core CPI (excluding the more volatile costs of food and energy) rose 3.3% year-on-year in September, slightly exceeding the expected and previous value of 3.2%; it increased by 0.3% month-on-month, slightly higher than the expected 0.2%, matching the previous value, and reaching the highest level since March.
It is worth mentioning that the so-called super core CPI has also picked up, with a year-on-year increase of 4.6%.
The higher-than-expected inflation data, coupled with the strong performance of last week's U.S. employment report, may intensify discussions about whether the Federal Reserve will choose to cut rates slightly next month or pause rate cuts after the significant reduction in September. The Federal Reserve plans to cut rates by half a percentage point before the end of the year, and many have expressed that they are monitoring the dynamics of the labor market.
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After the data release, U.S. stock index futures and U.S. Treasury yields fell, while the dollar remained almost unchanged. Traders are betting on a higher likelihood of a 25 basis point rate cut by the Federal Reserve next month.Commodity Inflation Turns Positive, Food Inflation Accelerates
Looking at the individual components, housing and food inflation together contributed more than 75% of the increase, with commodity prices also rising after steadily falling over the past year.
In terms of food, food inflation accelerated in September, with food prices rising by 0.4%, slightly higher than the 0.1% increase in August; after being flat in August, food grocery prices increased by 0.4% in September.
Regarding housing, housing inflation slowed in September, with overall housing costs rising by 0.2% month-on-month, a significant drop compared to the 0.5% increase in August, and the year-on-year increase also continued to decline. Among them, the Owners' Equivalent Rent (OER) index rose by 0.3%, which is also a slowdown from the previous month's 0.5% increase. Hotel prices fell, far from the expected significant increase.
Prices for new and used cars, as well as clothing and furniture, all increased, leading to the so-called core goods inflation rising for the second time since June 2023.
In the service sector, car insurance, healthcare, and airfare prices saw a noticeable increase; sports event ticket prices hit a record 10.9% increase, partly due to the start of the football season. Core service prices, excluding housing and energy, rose by 0.4% month-on-month, the largest increase since April, and this is also the third consecutive acceleration, marking the longest duration since the beginning of 2023.
Will the Federal Reserve Slow Down the Pace of Rate Cuts in November?
Previously, in light of the continued decline in inflation and a series of weak labor market data, the Federal Reserve began cutting rates in September, with a reduction of up to 50 basis points. The minutes of the meeting released on Wednesday showed a heated debate over the extent of the rate cut, and officials who spoke afterward indicated that they prefer to take a gradual approach to rate cuts.After the release of the CPI data, traders increased their bets on the Federal Reserve lowering interest rates by 25 basis points next month, while they began to unwind their bets on the Fed pausing rate cuts in November, currently expecting the Fed to cut rates by 25 basis points at each of the next few meetings.
Harris Financial Group analyst Jamie Cox stated:
The process of inflation receding is ongoing, but anyone who thinks the Federal Reserve will cut rates by another 50 basis points in November is sorely mistaken. When interest rates are not high enough to reduce economic growth, they are also not high enough to completely suppress inflation. Although the Federal Reserve will lower rates, it will do so at a measured pace from now on.
Pepperstone analyst Michael Brown indicated that despite the U.S. inflation data being higher than expected, the September CPI data seems unlikely to substantially alter the FOMC's policy outlook. He noted:
Despite the stronger-than-expected September employment report and given the ongoing progress against inflation, it is anticipated that the FOMC will cut rates by 25 basis points at each of the remaining two meetings this year, with this pace of rate cuts potentially continuing into 2025, until the federal funds rate roughly returns to a neutral level of around 3% by next summer. Essentially, this is the "Fed put" option, which continues to exist in a strong and flexible form, providing participants with further confidence to move away from the risk curve, also keeping stock market declines relatively shallow and seen as buying opportunities.
Goldman Sachs stated that next month's employment data is the focus of the Fed's easing policy:
The September CPI report was stronger than expected, with core CPI rising unexpectedly. However, labor market data remains the dominant factor for the Federal Reserve, and we believe that next month's employment data will be the more important data point in determining the pace and extent of the Fed's easing.
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