Core CPI up 3.3%... Impact of Food and Housing Costs
New Unemployment Claims Last Week Highest in 14 Months
88% Chance of 0.25%P Rate Cut in November
The U.S. consumer price index (CPI) inflation rate for last month exceeded market expectations, driven by rising food and housing costs. Although the inflation indicator surpassed forecasts, it eased to the mid-2% range, and employment is gradually slowing down, leading the market to increasingly anticipate that the Federal Reserve (Fed) will cut interest rates by 0.25 percentage points in November.
On the 10th (local time), the U.S. Department of Labor announced that the September CPI rose 2.4% year-on-year. This was a 0.1 percentage point decrease from August’s 2.5%, but still exceeded market expectations of 2.3%.
Compared to the previous month, the CPI increased by 0.2%, also surpassing the expected 0.1%. The August monthly increase was 0.2%.
The core CPI, which excludes volatile energy and food prices to show the underlying inflation trend, rose 0.3% month-on-month and 3.3% year-on-year. The core CPI increase also exceeded expert forecasts (0.2% and 3.2%, respectively). In August, the increases were 0.3% and 3.2%, respectively.
The main reasons for the CPI inflation rate exceeding expectations were increases in food prices and housing costs. Food prices rose 0.4% month-on-month, and housing costs increased by 0.2% during the same period, accounting for more than 75% of the core CPI increase. Although energy prices fell 1.9% compared to the previous month, the rise in food prices and housing costs offset this decline. During the same period, used cars rose 0.3%, new cars 0.2%, and clothing jumped 1.1%. Medical services also increased by 0.7% month-on-month.
Although the September inflation rate exceeded expectations, the overall inflation trend is widely regarded as easing toward the Fed’s target of 2%.
Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said in an interview with CNBC immediately after the September CPI release, "What matters is not the day-to-day fluctuations but the overall trend," adding, "Looking at the overall trend over 12 to 18 months, inflation has fallen significantly, and the job market has cooled to what we consider full employment."
Despite inflation indicators slightly exceeding expectations, the easing trend continues, and the labor market is gradually slowing, leading the market to anticipate that the Federal Reserve will cut interest rates by 0.25 percentage points in November. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market reflects an 88.4% probability that the Fed will cut rates by 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting next month. This is an increase of about 8 percentage points from the previous day’s 80.3%. Conversely, the probability of maintaining rates fell from 19.7% the previous day to 11.6% on this day.
Anna Wong, an economist at Bloomberg Economics, said, "Despite the surprise rise in core CPI, the FOMC is unlikely to change its view that inflation is on a downward trajectory," and predicted, "The FOMC is expected to cut rates by 0.25 percentage points in November."
Separately, the U.S. Department of Labor’s unemployment benefits data released on the same day showed that employment is gradually slowing. According to the Labor Department, new unemployment claims for the week of September 29 to October 5 increased by 33,000 from the previous week to 258,000, marking the highest level since August last year. Due to the impact of Hurricane Helen, this exceeded expert expectations (231,000) by 27,000. Continuing claims, which count those claiming unemployment benefits for at least two weeks, totaled 1,861,000 for the week of September 22 to 28, exceeding both the revised previous week’s figure (1,819,000) and market expectations (1,830,000).
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