USA: Worrying core CPI in September – UOB Group

In the latest CPI inflation release (released on October 10), US CPI inflation was a little higher than expected, notes UOB Group economist Alvin Liew.

General and underlying CPI above expectations in September

“US CPI inflation was a little higher than expected, as headline CPI rose 0.2% m/m, 2.4% y/y in September (August: 0.1% m/m, 2.5% y/y). Despite missing expectations, it was still the lowest since February 2021. But the core CPI continued to accelerate, as it increased by 0.3% m/m. (same pace as August) while compared to 12 months ago, it increased its pace to 3.3% y/y (August: 3.2%). Housing and food costs were key factors driving the overall CPI. , offsetting the decline in energy costs, while underlying services inflation accelerated across a multitude of items, including more expensive non-housing services.”

“We still expect US inflation to decline, but admit that near-term challenges are clearly present. We maintain our headline CPI forecast to average lower at 2.9% in 2024 (compared to 4.1 % recorded in 2023). Although core inflation may also decline, it is now likely to average 3.4% in 2024 (from the previous forecast of 3.3%). in 2023, but remains well above the Fed’s 2% target. Our headline and core inflation forecasts for 2025 are now both 2.0%.”

“The 50 basis point rate cut in September is increasingly looking more one-off and the Fed is likely to continue easing, but at a gradual pace. September’s core CPI, which was not as low, certainly lowered those more aggressive expectations for Fed rate cuts, but it probably wasn’t high enough to stop the Fed. If anything, it will imply gradualism for the Fed in its pace of easing. We still expect the Fed to continue the cycle of rate cuts at meetings. remaining this year, with 50 basis point cuts for the remainder of 2024 (i.e. two 25 basis point cuts, one on November 24 and one on December 24 from the FOMC).”