Troubling core CPI in September – UOB Group

In the latest CPI inflation print (released on 10 October), US CPI inflation was coming in a tad hotter than expectations, UOB Group’s economist Alvin Liew notes.

Headline and core CPI above expectations in September

“US CPI inflation was a tad hotter than expectations as headline CPI rose by 0.2% m/m, 2.4% y/y in Sep (August: 0.1% m/m, 2.5% y/y). Despite the miss, it was still the slowest since Feb 2021. But core CPI continued to accelerate as it rose by 0.3% m/m (same pace as August) while compared to 12 months ago, it picked up pace to 3.3% y/y (August: 3.2%). Shelter and food costs were key factors driving headline CPI, offsetting the decline in energy costs, while core services inflation accelerated on a plethora of items, including pricier non-housing services.”

“We still expect US inflation to ease but admittedly near-term challenges are clearly present. We keep our headline CPI forecast to average lower at 2.9% in 2024 (compared to the 4.1% recorded in 2023). While core inflation may also ease, it is now likely to average 3.4% in 2024 (from previous forecast of 3.3%). It is still a significant moderation from the 4.8% average in 2023 but remains well above the Fed’s 2% objective. Our 2025 headline inflation and core forecast are both now at 2.0%.”

“September’s jumbo 50 bps of rate cut increasingly looked to be oneoff and Fed likely to continue to ease but at a gradual pace. The not-so-cool September core CPI certainly dialed back those more aggressive expectations of Fed rate cuts but it probably was not hot enough to grind the Fed to a pause. If anything, it will imply gradualism for the Fed in its pace of easing. We still expect the Fed to continue the rate cut cycle in the remaining meetings this year, with 50-bps cuts for the remainder of 2024 (i.e. two 25-bps cuts, one each in November 24 and December 24 FOMC).”