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.

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NOISY SEPTEMBER DATA CONCEAL STEADY UPWARD TREND IN US INFLATION

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