- US consumer prices rose 0.2% in September 2013, thereby matching market expectations and following similarly modest increases of 0.1% and 0.2% in August and July, respectively. The year-over-year rate of increase dropped to 1.2% from 1.5% in August.
- In a separate report, private employment, as measured by the Automatic Data Processing (ADP) employment report, increased a smaller than expected 130,000 in October 2013 following slightly stronger 146,000 and 150,000 increases in September and August, respectively. Markets had expected a 150,000 reading in September.
Consumer prices rose an as expected 0.2% in September 2013 following similarly modest increases of 0.1% and 0.2% in August and July, respectively. The September increase failed to match a stronger 0.5% gain in the month a year ago, which resulted in the year-over-year pace of growth dropping to 1.2% from 1.5% in August. Energy prices jumped 0.8% in September, which were boosted by a 0.8% increase in gasoline prices; however, because of a surge in energy prices at this time last year, the year-over-year rate of energy price growth still dropped to -3.1% from -0.1% in August. Food price inflation remained benign in September by holding steady in the month and rising just 1.4% from a year ago.
Excluding the food and energy components, core CPI increased 0.1% in September following 0.1% and 0.2% gains in August and July, respectively. The modest monthly increase resulted in the year-over-year rate of growth inching lower to 1.7% from 1.8% in August.
The year-over-year rate of growth in the overall CPI continued to be pushed lower by gasoline prices, which have declined on an annual basis in six of nine months this year to date. Even excluding the energy component, however, there is little evidence of price pressure in the system with the annual pace of core price growth holding below 2% for a seventh consecutive month in September. The lack of underlying inflationary pressures continues to provide the Fed with flexibility to focus on the labour market half of its mandate. While economic output appears to have held up relatively well in the third quarter, employment growth was still slower than earlier in the year, and uncertainty persists about the ultimate effect of the partial federal government shutdown on activity in the fourth quarter. In the face of this uncertainty and with inflation not suggesting any need to rush to tighten, our expectation is that the Fed will maintain its policy stance at the conclusion of the October FOMC meeting later today, leaving both official rates and the pace of asset purchases unchanged.
RBC