- Headline inflation rose a modest 0.1% on the month in September, leaving the year-on-year pace unchanged at 1.7%.
- Core prices were up a matching 0.1% (m/m), slightly softer than markets were expecting. The core inflation rate remained unchanged from August at 2.4% on a year-on-year basis.
- The modest core reading was due to softer prices for core goods items. Prices fell for used cars and trucks (-1.6% m/m), apparel (-0.4%), new vehicles (-0.1%), and medical care commodities (-0.6%). Even with these price drops, core goods prices are still up (+0.7%) versus a year ago.
- Prices for core services were a bit firmer, rising 0.3% m/m in September. Key sources of inflation over the past year saw price increases: namely shelter (+0.3%) and medical care (+0.2%). Core services inflation was up 2.9% versus a year ago, matching August’s pace.
- Energy and food prices continued to put downward pressure on headline inflation in September. Food prices rose only 0.1% on the month, and are up 1.8% versus a year ago. Energy prices fell 1.4% on the month, and are down 4.8% versus a year ago.
Key Implications
- September’s inflation data lends support to those on the FOMC who are less worried about an imminent pick-up in inflation. Despite tariffs coming into effect on many imported consumer goods from China in the month, core goods inflation remained tame, after a couple of months of hotter readings. Services prices are keeping inflation on target, but do not show signs of further acceleration.
- Core inflation remained at its cycle peak of 2.4% after a period of softness earlier in the year. 2.4% is not a level to get too worked up about. The Fed’s preferred core inflation measure, core PCE, is typically a few ticks lower than CPI, so it is likely to still be close to the Fed’s 2% target. We expect the Fed will focus more on the clouds looming over the global economy, and deteriorating business confidence and investment activity at home to justify cutting rates one more time before the end of the year
