Noisy September data conceal steady upward trend in US inflation

Base effects and weaker energy prices were behind the plunge in September headline inflation (2.3% from 2.7% in August). Core inflation stood at 2.2%, just below expectations of 2.3% and in line with the August print, but this was mostly due to the exceptionally large (-1.5% yoy) drop in used vehicle inflation.

Highlights:

  • Base effects and a slower energy component capped inflation to 2.3% in September. The core rate stood at 2.2%, but mostly due to a sharp fall in used vehicles.
  • Reflation remains visible in the service component, consistent with the behavior of other underlying inflation measures. We expect the core rate to end the year at 2.3%, before peaking at around 2.5% in mid 2019.
  • Tariffs and oil tilts risks to the upside and may lead to higher market uncertainty on inflation. Expectations have overall moved higher over the last months, without drifting away from the Fed 2% target.
  • Expectation anchoring is getting center stage in the Fed communication and will receive a closer scrutiny over the coming months.

Download the full publication below

NOISY SEPTEMBER DATA CONCEAL STEADY UPWARD TREND IN US INFLATION

RELATED INSIGHTS

COVID-19 FACTS & FIGURES
According to the IMF’s Managing Director, strong international cooperation on coronavirus vaccine could speed up the world economic recovery and add $9 trillion to global income by 2025. A WHO trial found that Remdesivir, Hydroxychloroquine, Lopinavir and Interferon have little or no effect on hospitalized Covid-19 patients. Gilead Sciences has questioned the findings of the WHO study saying data appeared inconsistent.
INCORPORATING QUANT SIGNALS INTO EU EQUITY SECTOR/STYLE STRATEGY: MAINTAIN A TILT TO CYCLICALS AND VALUE
We present an update of our proprietary equity valuation tool, based on quant models. It provides indications of over- or undervaluation for different sectors and styles of European equities, which is further enriched by our qualitative analysis. Currently, among European equity sectors, financials, energy, telecoms, and autos look undervalued while Pharma, utilities and software appear overvalued.
CHINA’S RECOVERY CONTINUED BUT A BIT SOFTER THAN EXPECTED
China's economic recovery continued in Q3 2020, although a bit softer than expected. Real GDP growth rose to 4.9% yoy, slightly below the Reuters consensus expectation of 5.2% yoy, but still a substantial upturn from the 3.2% yoy in Q2. On a quarterly base, growth dynamics softened to 2.7% qoq, after 11.7% qoq and -10% qoq in the two previous quarters.