Consumer price growth accelerated in the United States last month, reducing the Federal Reserve’s scope for manoeuvre as it eases policy settings, and further depressing odds on a second outsized rate cut at next month’s decision. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index – with highly-volatile food and energy prices excluded – rose 3.3 percent in September from the same period last year, up 0.3 percent on a month-over-month basis. This was slightly above consensus estimates among economists polled by the major data providers ahead of the release, which had been set at 0.2 percent month-over-month.
On a headline all-items basis, prices climbed 2.4 percent year-over-year, down from the 2.5 percent pace set in August, and were up 0.2 percent from the previous month. Americans paid less for energy on a month-over-month basis, with falling electricity, gasoline, and natural gas costs helping relieve overall price pressures. The shelter sub-index—long the biggest contributor to overall inflation pressures—climbed 0.2 percent as the “owners equivalent rent” category continued to soften, and food prices jumped 0.4 percent, with the two factors contributing over 75 percent of the monthly increase.
Today’s report comes after a slew of relatively-positive data releases helped put the kibosh on a second half-percentage-point rate cut at the November Fed meeting, and before an October payrolls report that will contain deep flaws related to the impact of Hurricane Helene.
Market participants are incrementally raising rate expectations across the front end of the Treasury curve, equity futures are inching lower, and the dollar is adding to its gains – but moves have been relatively lacklustre so far, given that many market participants were braced for an even bigger upside surprise.
Unless today’s release is coupled with a substantive rise in the core personal consumption expenditures print – which is due a week before the Fed meets next – we think policymakers will remain confident in a gradual easing in price pressures, and will continue to deliver quarter-point rate cuts at successive meetings. Investors may have been overoptimistic in expecting a rapid sequence of outsized cuts after September’s decision, but a long series of gradual moves still remains the most likely outcome in coming months.