United States: Inflation Holds Steady in September

At 0.4%, the month-on-month change in headline CPI came in just above the consensus forecast of 0.3%. This was nevertheless a slight improvement on the 0.6% rise in August.

It's worth noting that although pressure from energy prices eased compared to August, they still came in higher than expected. Month-on-month, gasoline prices were up 2.1% in September, down from 10.6% in August, and we expect the decline to continue into October. But the fuel oil index remained on a steep upward curve (+8.5% in September) while electricity prices picked up the pace (from 0.2% in August to 1.3% in September).

Month-on-month, the conflicting trajectories of goods and services prices continue to pull core inflation, which strips out food and energy prices, in opposite directions. Goods prices, excluding food and energy, fell 0.4% in September, the sharpest decline since March 2022. The prices for used cars and trucks, along with apparel, both dropped over the month. 

Meanwhile, as goods prices go down, services excluding energy continue to climb, advancing 0.6% in September, the biggest jump since February. Meanwhile, shelter costs surged from 0.3% in August to 0.6% in September. The slowdown in rent rises seen in other indicators will take some time to show up in CPI. The cost of hospital services, motor vehicle insurance and admission to sporting events also rose sharply. Meanwhile, the three-month annualized change in CPI excluding energy and housing, which is the inflation gauge that Fed officials pay close attention to, jumped from 2.3% to 4.8%. 

The apparent stability of headline inflation in September, including the dip in core CPI, conceals the fact that the underlying upward pressures in the United States are still in place. The services index is still rising too fast to meet the Fed's target. It's clear that the US economy still hasn't fully absorbed the impact of rising interest rates, so Fed Chair Jerome Powell and his colleagues may hold off on another hike. The uptick in bond yields over the past few weeks also gives them some leeway. However, if other economic indicators prove to be as strong as the robust hiring in September or services inflation that refuses to go away, Fed officials may feel the need to start tightening once again.