Inflation in USA

USA - Inflation

Inflation softens in September

Consumer prices rose 0.1% from the previous month in September, under analysts’ expectations and August’s print, both at 0.2% month-on-month. The result was driven largely by higher prices for housing and transportation services, as well as a spike in apparel prices. This was however partly offset by a marked decline in energy prices, which was particularly notable for utility gas services, as well as a sharp downswing in the prices for used vehicles and trucks. Core consumer prices, which exclude volatile items including food and energy prices, also rose 0.1% from the previous month in September, undershooting market expectations of 0.2% but matching the print recorded in August. Meanwhile, inflation cooled significantly from 2.7% in August to 2.3% in September.

With respect to core inflation, one of the most closely watched indicators of the CPI report—as it is an important index for evaluating possible changes in monetary policy decisions from the Fed—the September reading also remained relatively tame at 2.2%. This matched the print logged in August but missed market expectations of 2.3%. This reading is consistent with a core PCE deflator—the Federal Reserve’s preferred inflation gauge—around 2%, which is the Fed’s stated objective. Thus, the September print appears to continue supporting the thesis of gradual rate hikes from the Fed, with a likely increase of 25 basis points at its next meeting in December, which is the scenario most widely expected by Met the why particular Consensus Forecast panelists.

Looking ahead, inflation developments should continue to be tilted to the upside in coming months, due to a combination of rising oil prices, a tight labor market starting to lift wage growth, and the effects of a recently enacted new round of tariffs on USD 200 billion of goods from China. The levy on these imports is currently applied at a rate of 11%, but the Trump administration plans to raise the rate to 25% by 1 January 2019, which will, in all likelihood, increase pressure on consumer prices.

Met the why particular Consensus Forecast participants expect inflation to average 2.5% in 2018, which is unchanged from last month’s forecast. For 2019, the panel expects inflation to average 2.3%, which is also unchanged from last month’s forecast.