U.S. inflation pressures slowed modestly last month, data indicated Thursday, but the mixed reading suggests price pressures could remain elevated into the final months of the year.
The headline consumer price index for September was pegged by the Commerce Department at 3.7%, matching the prior month's tally but coming in just ahead of Wall Street's 3.6% forecast, powered in part by rising oil and energy prices.
On a monthly basis, the index showed inflation up 0.4%, down from the 0.6% recorded in August and modestly above the Street's 0.3% estimate for September.
So-called core inflation, which strips out volatile components like food and energy, slowed to 4.1%, the lowest in two years. The monthly reading of 0.3% matched Wall Street forecasts.
Markets are likely to focus on the core reading, however, given that the Fed has indicated it much better reflects the pressures Americans face in their day-to-day spending. As a result, the core figure is often connected to wage increases that can engender feedback loops that keep prices elevated.
“The ongoing slowdown in core inflation could go some way to counteracting the blowout jobs report last week if the [Federal Open Market Committee] is to keep interest rates on hold when it next meets on 1 November," said Daniel Casali, chief investment officer at wealth manager Evelyn Partners.
"Moreover, policymakers are likely to place importance on the recent sharp rise in long-term government yields, which reduces the need for the Fed to tighten further, as the markets have effectively done their job for them, Casali added. "The FOMC will also be aware of the impact on growth from strikes in the auto sector and a potential US government shutdown from mid-November."
The reading for producer prices yesterday was modestly faster-than-expected, showing factory-gate inflation up 0.5% on the month and 2.2% on the year.
That could have set the stage for an upside surprise in today's CPI report. But muted wage gains from Friday's September non-farm payroll report, which included the addition of 336,000 new jobs last month, suggested more risk to the downside. That was confirmed in today's CPI report.
A separate reading of weekly jobless claims, published Thursday by the Labor Department, showed new applications for unemployment benefits held at 209,000 for the period ended Oct. 7, around 3,000 lower than Wall Street forecasts.
"The forces which drove up core inflation — excess demand, the supply-chain crunch, rapid wage growth, covid-driven chaos in the rental property market, and soaring food and energy prices — continue to abate," said Ian Shepherdson of Pantheon Macroeconomics. "We remain firmly of the view that core inflation will fall faster than the Fed expects over the next year."
Wall Street appears to be adopting that view as well, with traders placing the odds of another Fed rate hike between now and year-end at around 27%, while at the same time suggesting a rate cut could come as early as June, according to data from CME Group's FedWatch.
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