CPI Refuses To Sound The All-Clear

US consumer prices rose more than anticipated in September, data out Thursday showed.

At 0.4%, the MoM headline print was on the warm side, but the core gauge was in line, perhaps taking the edge off. On a YoY basis, headline price growth was 3.7%, a touch higher than the 3.6% consensus expected.

Between a demonstrable shift in Fed rhetoric and rampant uncertainty around Israel’s apparently imminent invasion of Gaza, the CPI release was arguably less relevant. “The combination of the Israel-Hamas conflict and the tone-shift from the recent Fedspeak has lessened the potential impact of [the] inflation update,” BMO’s Ian Lyngen and Ben Jeffery remarked.

Nevertheless, market participants were obliged to care. Or feign concern, anyway. The 0.3% increase on the core index matched estimates, as did the 4.1% YoY reading.

The unrounded MoM core print (shown in the figure) represented an uptick from August’s pace.

A quick look across the components showed the largest contributors to the all-items increase were shelter and gas, not surprising under the circumstances.

The increase on the gasoline gauge was 2.1%, down from August’s double-digit surge but unhelpful all the same. The MoM jump on the shelter gauge, 0.647%, counted as the most pronounced since February.

The closely-watched owners’ equivalent rent index likewise posted a meaningful increase.

Food inflation was tolerable. Grocery prices rose just 0.1%, the slowest monthly increase on the food at home gauge since June. The overall food index posted a 0.2% increase for the third straight month. Used vehicle prices fell 2.5% from August, the fifth consecutive monthly decline. Apparel prices likewise fell from month to month.

Unfortunately, the CPI-derived “supercore” measures were both warm. Core services prices excluding shelter rose 0.46%. Stripping out rent and OER, CPI services jumped 0.6%, nearly double August’s increase and the briskest monthly pace in a year.

The data came on the heels of a PPI update which suggested price pressures are still percolating in the pipeline.

All in all, the CPI release could fairly be described as “firm,” and you wouldn’t be wrong to call it too warm for comfort. Still, a veritable procession of Fed officials made it clear in recent days that the selloff at the long-end of the US Treasury curve might’ve obviated the need to raise rates again in 2023. The September CPI report pushed back on that narrative at the margins. Whether it’s enough to put the November FOMC meeting in play beyond, say, one-in-three odds, is debatable.


 

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