US CPI: Core inflation settles down

Data released today showed that the Consumer Price Index (CPI) remained unchanged in September while the core index rose 0.1%. Analysts at Wells Fargo, point out that while the trend in inflation has firmed recently, it remains sufficiently tame for the Federal Reserve.

Key Quotes:

“Inflation eased up in September, with prices unchanged over the month. A 2.4% drop in gasoline prices held down the headline. We expect the drag to dissipate next month, following the jump in gas prices after outages at a major Saudi Arabian facility, and for gasoline to be a more neutral force in October as oil prices have come down more recently.”

“Although the core trend has firmed in recent months, inflation is still running below levels that are likely to threaten the FOMC’s easing bias. Committee members have heavily emphasized the symmetric nature of the inflation target. With the core PCE deflator running below the FOMC’s
2% target for all but 11 months of the 10+ year expansion and inflation expectations at the low end of historical ranges, concerns about inflation remain skewed toward it running too cool, not too hot. Moreover, the dimmer prospects for U.S. growth under the light of a weak global economy and the trade war are expected to weigh on inflation in the coming months and offset the temporary boost from tariffs.”

“The softer September print in core CPI weakens FOMC hawks’ case for holding off on further rate cuts as it shows inflation is not about to break meaningfully above the Fed’s target. We continue to look for the FOMC to cut rates again in the fourth quarter, most likely as early as this month, as
growth slows and significant downside risks to the outlook linger.”

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