In September, inflation showed signs of moderation, largely attributed to a decrease in energy prices and the ongoing decline in used car prices, according to the latest data released by the Bureau of Labor Statistics on Thursday morning.
The Consumer Price Index (CPI) indicated that inflation increased by 0.4% compared to the previous month and by 3.7% over the past year. This represents a slowdown from the 0.6% month-over-month increase and aligns with the 3.7% annual rise observed in August.
Both of these figures slightly exceeded economist predictions, which anticipated a 0.3% month-over-month increase and a 3.6% annual increase, according to Bloomberg data.
When looking at a “core” basis, which excludes the more volatile costs of food and gas, September prices rose by 4.1% over the previous year, showing a slowdown from the 4.3% annual increase seen in August.
Monthly core prices increased by 0.3%, mirroring the figures from August. These results met economist expectations.
The release of this data had a muted impact on US stock markets in early trading. Treasury yields saw a slight increase of less than 2 basis points, settling around 4.6%.
Inflation has remained notably above the Federal Reserve’s 2% target. The labor market, while experiencing softening in specific areas, remains relatively tight.
Combined with a surprising increase in wholesale inflation data, these factors suggest that the Federal Reserve might continue to raise interest rates.
The latest meeting minutes from the Federal Reserve, released on Wednesday, indicated that policymakers support a more restrictive rate environment.
However, economists do not see this report as necessarily providing strong support for another rate increase by the central bank. As noted by economists at Capital Economics, “Overall, there is nothing here that will convince Fed officials to hike rates at the next FOMC meeting.
We continue to expect a more rapid decline in inflation and weaker economic growth to result in rates being cut much more aggressively next year than markets are pricing in.”
Seema Shah, Chief Global Strategist at Principal Asset Management, described the report as “reassuringly uneventful” and suggested, “With core CPI in line with expectations and extending the disinflation narrative, there is nothing in the inflation report that should sway the Fed in one direction or the other.”
Following the release of this data, market expectations were pointing towards a roughly 90% chance that the Federal Reserve will keep rates unchanged next month, according to data from the CME Group.
In the broader context of the inflation report, the energy index decreased by 0.5% for the 12 months ending in September.
Nevertheless, energy prices increased by 1.5% on a seasonally adjusted month-over-month basis after a 5.6% rise in August. Gas prices saw a 2.1% increase in September following a 10.6% increase in August.
Within core inflation, rent increases remained elevated but displayed signs of easing on an annual basis. The shelter index was the primary contributor to the monthly increase in core inflation, rising by 0.6% month-over-month, slightly higher than August’s 0.4% monthly jump.
The index showed a 7.2% increase over the past year, slightly down from the 7.3% annual gain seen in August.
Indexes for rent and owners’ equivalent rent increased by 0.5% and 0.6% on a monthly basis, respectively. Owners’ equivalent rent represents the hypothetical rent a homeowner would pay for their current dwelling.
Among other indexes that rose in August were those related to lodging away from home, motor vehicle insurance, recreation, personal care, and new vehicles, as highlighted by the BLS.
Conversely, the indexes for used cars and trucks, as well as apparel, witnessed decreases during the month. Prices for used cars and trucks fell by 2.5% in September, following a 1.2% decline in August.
The food index recorded a 3.7% increase over the past year, with food prices rising by 0.4% from August to September. The index for food at home increased by just 0.1% over the month, following a 0.2% rise in August.
In an unusual turn of events compared to previous months, egg prices increased by 0.9% month-over-month after experiencing declines of 2.5% in August and 2.2% in July.
(Source: Yahoo Finance)
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