US: Inflation firming, but Fed still has options – RBC

Nathan Janzen, senior economist at the Royal Bank of Canada, notes that the year-over-year, US headline inflation held at 1.7% while core inflation was held at 2.4%.

Key Quotes

“Core ex-food & energy CPI price inflation held at a 2.4% year-over-year rate in September – still above the Fed’s 2% inflation objective.”

“Energy prices have been weighing a touch on the headline rate, which remained at a lower 1.7% year-over-year growth pace in September. But lower gasoline prices are a positive for household purchasing power.”

“The Fed’s preferred core PCE deflator has been below core CPI this year, but growth in that measure has also ticked higher in recent months, rising to 1.8% in August.”

“Underlying inflation trends increasingly look to be converging around the Fed’s 2% objective.”

“Still, Fed policymakers have shown far more concern about the external growth backdrop, and the economic impact of escalating US-China trade tensions/tariffs, than current domestic conditions. The Fed remains highly likely to follow up 25 basis point rate cuts in July and September with another move lower in Q4.”