Highlights:
- Year-over-year growth in the all-items index jumped above a 2% rate – to 2.2% – for the first time since April, but almost entirely because of a surge in gasoline prices tied to production disruptions from Hurricane Harvey
- Gasoline prices jumped 13.1% on a month-over-month basis and were up 19.3% from a year ago.
- Excluding food & energy prices, ‘core’ CPI inched up 0.1% on a month-over-month basis and the year-over-year rate held steady at 1.7% for a fifth consecutive month.
Our Take:
A jump in energy prices was almost entirely responsible for the rise in the headline year-over-year rate to back above a 2% rate in September. Gasoline prices surged 13% higher on a month-over-month basis in September, and were up almost 20% from a year ago, as production disruptions at petroleum refineries in the U.S. gulf coast region tied to Hurricane Harvey hit gasoline supply. Most of that increase should ultimately prove transitory as production recovers.
Outside of the energy component, trends were little changed. Core – ex-food & energy – price growth held steady at 1.7% on a year-over-year basis for a fifth consecutive month. The year-over-year increase would look stronger if not for an unusually large decline in telecommunication prices earlier this year and the Fed will likely take some comfort from the fact that the pace of growth is no longer slowing. The economic backdrop still looks solid and labour markets are increasingly tight so it is more likely that underlying inflation pressures will move higher than lower going forward. With most (non-price) indicators suggesting that the U.S. economy is quite close to capacity, we continue to think that more interest rate hikes will be warranted. Nonetheless, near-term inflation pressures still look relatively benign, so we also continue to expect the pace of increases will be very gradual.
