- Core CPI was hotter than consensus, matching Scotia’s estimate
- Early mapping points to elevated core PCE inflation
- Pass through into goods and services prices is evident
- Seasonal adjustment factors tamped down the jump
- Markets raise Fed hike pricing for October onward…
- …as Scotiabank Economics forecasts two more hikes
- US CPI / core CPI, m/m %, SA, September:
- Actual: 0.65 / 0.33
- Scotia: 0.6 / 0.3
- Consensus: 0.6 / 0.2
- Prior: 0.40 / 0.29
US inflation surprised consensus and market expectations while matching my estimates. Core CPI climbed 0.33% m/m SA with total CPI inflation up 0.65%. Core CPI inflation is clearly not waning (chart 1). The results raised the year-over-year rates to 3.7% (3.4% previously) and 2.6% y/y (2.4% prior) for total CPI and core CPI respectively.
Core goods prices (ex-food and energy) were up by 0.3% m/m SA and at an annualized rate are on an accelerating trend (chart 2). This reflects pass through of commodities and tariffs and is consistent with soft survey guidance as a leading indicator.
Core services CPI (ex-housing and energy services) was up by 0.4% m/m SA and at an annualized rate continues to post sharp increases (chart 3). Here too, we are seeing pass through effects.
PCE is tracking a rise of 0.45% m/m SA and core PCE is tracking 0.27% m/m SA. This is derived by taking the CPI figures and adjusting for weighting differences. We’ll reassess the implications for PCE inflation when we get producer prices tomorrow including the components that are included in PCE. The bottom line is that underlying inflation in the US economy remains rather warm. I wouldn’t rule out another hike on October 28th despite some guidance from FOMC officials. Accordingly, market pricing for that meeting shot up from about 5bps to about half of a 25bps rate hike.
Breadth of inflationary pressures remains high (chart 4).
Having said that, the smoothed m/m price increases fall into buckets that represent a rather lumpy profile of inflationary pressures (chart 5).
The jump in core CPI was driven by seasonally unadjusted prices (chart 6) that were tamped down by another relatively tame seasonal adjustment factor (chart 7).
Charts 8–16 break down individual parts of the basket.
Charts 17–18 break down the basket in unweighted terms and in terms of weighted contributions to m/m inflation. Charts 19-20 do likewise for y/y rates.
Please also see the accompanying table that provides further details.
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