- Headline US inflation exceeded estimates by staying at 3.7% YoY in September.
- Core inflation came down to 4.1%, meeting economists' estimates.
- Federal Reserve officials have been playing down the chances of another rate hike.
One step at a time, inflation is coming down, including the stickier parts of it. The September Consumer Price Index (CPI) report carried relatively high expectations, making a miss more likely. Nevertheless, apart from US Dollar bulls, there is good news for all – contrary to the initial reaction.
Food prices remain dear – more than compensating for a small drop in Oil prices. These volatile factors kept headline inflation elevated. The CPI rose by 0.4% MoM, above the 0.3% increase expected, while yearly price rises came out at 3.7%, as expected. Underlying prices slowed to 4.1% YoY, also meeting early projections.
The core data is what the Federal Reserve cares about – it is the kind of prices the central bank can impact. Higher rates discourage buying home and paying higher wages, which impact the services sector.
Without a surprise in core prices, markets reacted to the small surprise in the headline, raising rate hike expectations via higher yields. The US Dollar advanced while stocks and Gold retreated.
However, Fed officials recently indicated that higher returns on Treasuries obviate the need for further hikes. They may repeat this stance in speeches following the release, reversing current moves.
Moreover, the Core CPI data joins softer wage data in an otherwise robust jobs report. While Nonfarm Payrolls came out at 336,000 for September, Average Hourly Earnings increased by only 0.2%. All in all, both headline and core inflation are below interest rates, and the Fed has little need for further moves.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.