US: Inflation is taking a breather – TD Securities

Analysts at TD Securities note that the US headline inflation surprised to the downside in September at 0.0% m/m (0.023% unrounded), keeping the annual rate unchanged at 1.7% y/y (TD and consensus: 1.8%).

Key Quotes

“At 0.1% m/m (0.132% unrounded), core inflation finally lost some steam in September following three consecutive 0.3% increases in Jun-Aug. Despite the softer-than-expected monthly print, core inflation remained at a still solid 2.4% y/y for September.”

“Looking into the details, weakness in the core segment was largely explained by a -0.3% drop in core goods prices, which registered its first decline in four months.”

“On the other hand, core services inflation remained firm on a monthly basis, rising 0.3% m/m.”

“Although inflation continues to be a factor in the Fed's reasoning behind recent rate cuts, we don't see this month's CPI reading changing the calculus for the Fed in the near-term. Core PCE inflation remains below-target and inflation expectations continue to hover below the historical levels associated with price stability. Weaker PPI and CPI inflation reports aren't likely to change that picture, in our view.”

“We continue to expect the Fed to deliver another rate cut at the end of the month, with global growth, manufacturing, and trade also remaining key concerns.”