On October 24th local time, data released by the U.S. Bureau of Labor Statistics showed that the U.S. Consumer Price Index (CPI) rose 0.3% month-on-month in September, lower than August's 0.4%; year-on-year, it rose 3.0%, slightly higher than the previous value of 2.9%, but still lower than the market expectation of 3.1%. The core CPI, excluding food and energy, rose 0.2% month-on-month, declining for the third consecutive month, and the year-on-year increase also fell to 3.0%. This data was collected before the government funding was interrupted and is considered the last important inflation report before the Federal Reserve's interest rate meeting next week.
Analysts believe that moderate inflation has opened up room for the Federal Reserve to cut interest rates by another 25 basis points. Despite a short-term rise in energy prices, the slowdown in housing costs and overall stability in core prices indicate that inflationary pressures continue to ease. The dollar and Treasury yields fell slightly after the data release, and market expectations for another rate cut this year have increased.
Housing inflation has cooled significantly.
Energy prices rose 1.5% in September, becoming the main driver of the overall CPI increase, with the gasoline price index jumping 4.1%. In contrast, electricity and natural gas... Prices fell by 0.5% and 1.2% respectively. Over the past 12 months, energy prices rose by 2.8% overall, but gasoline prices were still down 0.5% compared to the same period last year.
Food prices rose 0.2% month-on-month, a significant slowdown from 0.5% in August. Household food prices rose 0.3%, while dining out prices rose 0.1%. Among the six major food categories, grains and baked goods, as well as non-alcoholic beverages, rose 0.7%, dairy products fell by approximately 0.5%, and fruits and vegetables remained largely unchanged. Overall, food inflation is easing, with household food prices rising 2.7% year-on-year and dining out prices rising 3.7% year-on-year.
More noteworthy is the significant cooling of housing inflation. The housing index rose only 0.2% in September, with "owner's equivalent rent" increasing by a mere 0.1%, the smallest increase since the beginning of 2021. The rent index rose 0.2%, and off-site accommodation rose 1.3%. Analysts believe this slowdown may partly reflect statistical fluctuations. Omair Sharif, president of Inflation Insights, stated, "The gap between owner's equivalent rent and actual rent is likely statistical noise. From this perspective, this month's core CPI may slightly underestimate the true inflation trend."
While housing-related inflation is indeed cooling, the market generally believes the data is slightly underestimated. A rebound in rents could lead to a short-term spike in subsequent inflation readings. However, the overall trend still indicates easing housing cost pressures, providing support for a decline in core inflation.
Moderate inflation paves the way for interest rate cuts
The Federal Reserve is set to hold its policy meeting next Tuesday and Wednesday. The market widely expects the Fed to cut interest rates by 25 basis points for the second consecutive time to address the risks posed by a slowing job market.
In a report, Raymond James Financial stated that the Federal Reserve's focus is gradually shifting to supporting the labor market, "with inflation risks primarily driven by tariffs and being temporary, the policy focus will be more on preventing further weakening of the labor market."
U.S. core commodity prices rose 1.5% year-on-year in September, the highest level outside of the post-pandemic peak, indicating that the new round of import tariffs has begun to impact commodity prices. Apparel rose approximately 0.7%, home goods and operating equipment rose 0.4%, and new vehicles rose 0.2%. Analysts believe that although tariffs have driven up prices in some categories, businesses are still bearing most of the costs to maintain demand.
In terms of service prices, airfares rose 2.7%, entertainment and personal care each increased by 0.4%, and healthcare rebounded by 0.2%. Used cars and trucks decreased by approximately 0.4%, and motor vehicle insurance... It fell 0.4%. Core services (excluding housing) rose about 3.2% year-over-year, indicating that even after adjusting for tariffs, service sector inflation was still slightly above the Federal Reserve's target.
Lauren Goodwin, chief economist at New York Life Investments, an asset management firm, analyzed that "current inflation data is insufficient to offset the weak jobs report, and a Fed rate cut next week is almost a certainty. However, for policymakers to further ease policy, they need to see a more significant decline in inflation or clearer signs of a deteriorating labor market."
Economists estimate that initial jobless claims in mid-October were around 227,000, and while the unemployment rate has risen slowly, it remains low. Analysts believe that while the labor market is softening, it has not yet deteriorated, providing the Federal Reserve with room for "gradual adjustments."
The data disruptions caused by the government shutdown have increased uncertainty in policy decisions. The Bureau of Labor Statistics indicated that the October CPI may not be released as scheduled. In an environment of incomplete information, policymakers are more likely to slow down and proceed cautiously; the modest reading of the September CPI further reinforced this approach.
(Article source: CBN)
