In September, the inflation process in the usa stalled, with overall CPI and core CPI both exceeding expectations.

The U.S. Bureau of Labor Statistics released data on Thursday:

In September, the CPI in the usa increased by 2.4% year-on-year, slightly slowing down from the previous value of 2.5%, but surpassing the expected value of 2.3%, the lowest level since February 2021, mainly due to the decrease in energy prices; on a month-on-month basis, it increased by 0.2%, unchanged from the previous value, exceeding the expected value of 0.1%;

In September, the core CPI in the usa (excluding the volatile costs of food and energy) rose by 3.3% year-on-year, slightly exceeding the expected and previous value of 3.2%; on a month-on-month basis, it increased by 0.3%, slightly higher than the expected 0.2%, staying unchanged from the previous value, reaching the highest level since March.

It is worth noting that the so-called super core CPI also rose, with a 4.6% year-on-year increase.

Higher-than-expected inflation data, coupled with the strong performance in last week's U.S. employment report, may intensify discussions on whether the Federal Reserve will choose a slight rate cut next month or pause after a significant cut in September. The Federal Reserve plans to cut rates by half a percentage point before the end of the year, and many are closely watching the dynamics of the labor market.

After the data was released, U.S. equity index futures and U.S. Treasury yields fell, while the U.S. dollar remained almost unchanged. Traders are betting that the likelihood of a 25 basis point rate cut by the Federal Reserve next month is higher.

Commodity inflation has turned from decline to rise, with food inflation accelerating

From various sub-items, housing and food inflation together contributed to more than 75% of the increase, while commodity prices steadily rose after a year of steady decline.

In terms of food, food inflation accelerated in September, with food prices rising by 0.4%, slightly higher than the 0.1% in August; the price of food and groceries remained flat in August but increased by 0.4% in September.

In terms of housing, in September, housing inflation slowed down slightly, with an overall housing cost increase of 0.2% month-on-month, a significant drop compared to the 0.5% increase in August, and the year-on-year increase also continued to decline. The Owner's Equivalent Rent Index (OER) rose by 0.3%, showing a slower increase compared to the 0.5% increase last month. Hotel prices fell, far below the significant expected increase.

Prices of new cars, used cars, as well as clothing and furniture, have all increased, leading to the so-called core commodity inflation rising for the second time since June 2023.

In the service sector, prices of auto insurance, medical care, and plane tickets have significantly increased; sports event ticket prices reached a record 10.9%, partly due to the start of the football season. Excluding housing and energy, core service prices rose by 0.4% month-on-month, the largest increase since April, marking the third consecutive acceleration and the longest duration since early 2023.

Will the Fed slow down rate cuts in November?

Previously, due to persistent decreasing inflation and a series of weak labor market data, the Fed began cutting rates in September, with a substantial 50 basis point cut. Minutes from the Wednesday meeting showed intense debates over the extent of the rate cut. Officials speaking after the meeting indicated a preference for a gradual approach to rate cuts.

Following the CPI data release, traders increased bets on a 25 basis point Fed rate cut next month, while traders began to unwind bets on the Fed pausing rate cuts in November. It is currently expected that the Fed will cut rates by 25 basis points in the next few meetings.

Analyst Jamie Cox of Harris Financial Group stated:

The process of declining inflation is ongoing, but anyone who thinks that the Federal Reserve will cut rates by another 50 basis points in November is completely wrong. When interest rates are not high enough to slow down economic growth, they are also not high enough to fully curb inflation. Although the Fed will lower rates, it will do so at a moderate pace from now on.

Analyst Michael Brown of Pepperstone stated that despite higher-than-expected U.S. inflation data, the CPI data for September seems unlikely to substantially alter the policy outlook of the FOMC. He pointed out:

Despite the stronger-than-expected employment report in September, and considering the ongoing anti-inflation progress, it is expected that the remaining two FOMC meetings this year will each cut interest rates by 25 basis points. This rate-cutting pace may continue until 2025, until the federal funds rate returns to a neutral level of around 3% by next summer. Essentially, this is the 'Fed's put option,' which continues to exist in a strong and flexible form, providing participants with further confidence to move away from the risk curve, while also keeping stock market declines relatively shallow and seen as buying opportunities.

Goldman Sachs indicates that the key focus of the Fed's accommodative policy next month will be the employment data:

The CPI report for September was stronger than expected, with core CPI rising unexpectedly. However, labor market data remains the key factor for the Fed, and we believe that next month's employment data will be a more important data point in determining the pace and extent of the Fed's accommodative steps.

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