Today’s inflation data suggest that inflation was steady in September. However, given recent weaknesses in commodities the near-term outlook for US inflation remains soft, giving the Fed room to keep interest rates low well into 2015.
US September headline CPI was slightly higher than expected, climbing 0.1% over the month despite lower energy prices, and also core CPI advanced 0.1% after being flat in August, in line with the consensus forecast.
Over the past 12 months, CPI and core CPI are both up a modest 1.7% in September, both unchanged from August readings. The consensus forecasts were 1.6% and 1.7%, respectively. Our estimates were 1.6% and 1.8%.
Given the typical gap between CPI and PCE inflation, this is consistent with core PCE inflation around 1.4-1.5%, marginally up from the 1.2% recent low and still well below the Fed’s 2% longer-run target.
Given recent weaknesses in commodities the near-term outlook for US inflation remains soft. Combined with increased global growth concerns this gives the Fed room to keep interest rates low well into 2015.
Tomorrow we will release a small adjustment to our forecast of the timing of the first Fed rate hike.
Fortunately, falling gasoline prices appear to be helping boost consumer confidence, currently at cycle high levels.
Within the CPI, increases in shelter costs (+0.3%) and food prices (0.3%) outweighed declines in energy (-0.7%). Also medical care prices increased (+0.2%), while airline fares declined again (-0.5% following -4.7% in August and -5.9% in July).
Nordea