US: Prospects for a meaningful pickup in inflation continue to dim – ABN AMRO

Assessing Thursday’s inflation report from the United States (US), “September Core Consumer Price Index (CPI)  inflation came in below expectations at 0.1% mom (ABN/consensus: 0.2%), while the annual measure was in line at 2.4% yoy (the difference due to rounding),” noted ABN AMRO senior economist Bill Diviney.  

Key quotes

“The downside surprise was driven by bigger payback in core goods inflation than we had factored into our forecast, with used cars and apparel registering declines on the month. More importantly for the outlook, core services inflation (excluding shelter, transportation and medical) has continued to soften, with annual inflation falling to 1.6% yoy – the weakest since March 2018.”

“Services is where you would expect to see the effects of a tight labour market and higher wage growth, but there is still little sign that businesses are passing on higher unit labour cost growth. With the labour market now weakening (albeit modestly), and wage growth looking to have peaked for the time being, the prospects for a meaningful pickup in inflation continue to dim.”

“While not the driver of rate cuts for most on the FOMC, muted inflation is certainly an enabler of easier policy. As such, the continued softness supports our expectation of further Fed rate cuts in October and December.”