US consumer prices rose slightly more than expected in September, but the annual increase in inflation was the smallest in 3-1/2 years, which may keep the Federal Reserve on track for another rate cut in next month.
The consumer price index rose 0.2 percent last month, after rising 0.2 percent in August, the Labor Department’s Bureau of Labor Statistics said Thursday. In the 12 months to September, the CPI rose by 2.4%. This was the smallest annual increase since February 2021 and followed a 2.5% rise in August.
Economists polled by Reuters had expected the CPI to rise 0.1 percent and rise 2.3 percent year-on-year. Annual inflation growth has slowed since peaking at 9.1% in June 2022.
Coupled with the significant easing of inflation measures the US central bank is tracking towards its 2% target, this allowed the Fed to turn its attention to the labor market and make an unusually large 50 basis point rate cut in September.
Minutes of that meeting released Wednesday showed that a “substantial majority” of policymakers supported the start of an era of easier monetary policy, but there appeared to be even broader agreement that the initial move would not commit the Fed to a specific rate of tapering of interest rates in the future.
The first rate cut since 2020 lowered the central bank’s policy rate to a range of 4.75%-5.00%. The Fed raised rates by 525 basis points in 2022 and 2023.
A resilient labor market and steady consumer spending have, however, forced investors to abandon hopes of another half-percentage-point rate cut next month.
The economy added the most jobs in six months in September and the unemployment rate fell to 4.1% from 4.2% in August. Revisions of national accounts data last month from 2019 to the second quarter of this year also showed the economy was in much better shape than previously estimated.
There are also some pockets of persistence, notably in rents, which are slowing the pace of cooling underlying inflation.
Excluding volatile food and energy components, the CPI rose 0.3% in September, following a 0.3% increase in August. In the 12 months to September, the so-called core CPI advanced 3.3%. This followed a 3.2% increase in August.
Early Thursday, financial markets saw a roughly 76% chance of a 25-basis-point rate cut at the Fed’s Nov. 6-7 policy meeting, according to CME Group’s (NASDAQ:CME) FedWatch tool. The odds of interest rates remaining unchanged were around 24%.
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Reference;
Reuters (2024) US consumer prices rise slightly above expectations in September By Reuters, Investing.com. Investing.com. Available at: https://www.investing.com/news/economy-news/us-consumer-prices-rise-slightly-above-expectations-in-september-3657654 (Accessed: 10 October 2024).
