According to data released by the US Bureau of Labor Statistics on October 12th, the Consumer Price Index (CPI) in the United States increased by 3.7% year-on-year in September, which is unchanged from the previous month and slightly higher than the market expectation of 3.6%; The month on month growth rate slowed to 0.4% from 0.6% last month.
However, the core CPI growth rate after excluding energy and food, which the Federal Reserve is more concerned about, has decreased for six consecutive months, from a year-on-year growth of 4.3% last month to 4.1%, the smallest increase in nearly two years.
Analysis suggests that a cooling of core CPI may alleviate the pressure on the Federal Reserve to some extent, but energy prices remain strong, making it difficult for US inflation to fall. The Federal Reserve may need to maintain high interest rates for a longer period of time.
Inflation is difficult to reduce
Specifically, the indices of used cars, trucks, and clothing have all declined this month, helping to maintain a sustained slowdown in core inflation.
However, housing costs are the main factor contributing to the rise in inflation. The housing index, which accounts for about one-third of the CPI weight, rose 0.6% this month, up 7.2% from the same period last year.
Energy costs increased by 1.5%, with gasoline prices rising by 2.1% month on month, fuel prices rising by 8.5% V-shaped, and food prices rising by 0.2% month on month for the third consecutive month.
At present, the continuous reduction in OPEC+production may cause international oil prices to continue to rise.
Russian President Putin stated at the "Russian Energy Week" meeting held in Moscow on October 11th that the OPEC+production reduction agreement may continue to be extended, and OPEC+member countries will fully fulfill their commitments and successfully address all challenges. Previously, Saudi Arabia and Russia, through voluntary production reduction cooperation, pushed international oil prices to around $100 in September.
Jay Bryson, Chief Economist of Wells Fargo, said that the last mile of reaching 2% inflation is difficult. This is why the Federal Reserve will continue to tighten for a considerable period of time.
In addition to the difficulty of lowering CPI, the US Department of Labor recently released a 2.2% year-on-year increase in September Producer Price Index (PPI), marking the third consecutive month of increase. Among them, energy prices increased by 3.3%, food prices increased by 0.9%, and the core producer price index excluding food and energy increased by 2.7% year-on-year.
An increase in PPI usually means that producers face rising costs, which may lead to an increase in the prices of goods and services. When producers face rising costs, they may pass on the costs to consumers, leading to an increase in consumer prices.
Interest rate hikes may continue to be suspended in November
US media believe that high prices indicate that domestic inflation in the United States will remain high. Industry insiders predict that the annualized growth rate of the US core consumer price index will remain high in the next six months. On the other hand, the media also pointed out that the high budget deficit in the United States also affects inflation levels, and fierce party debates have prevented the US government from taking measures to reduce the budget deficit.
In addition, stubborn inflation has led to controversy within the Federal Reserve over the future path of interest rate hikes. The latest September meeting minutes show that Federal Reserve officials remain concerned about rising inflation. Most officials believe that another rate hike at future meetings may be appropriate, while some officials believe that further rate hikes may not be necessary.
Robert Pavlik, Senior Portfolio Manager at DAKOTA WEALTH, believes that the Federal Reserve will continue to remain calm and may be more cautious about the direction of inflation. Currently, the CPI in the United States is still moving in the right direction, but the market is still uncertain about its dynamics. In the long run, the Federal Reserve will suspend interest rate hikes at its next meeting.
According to the latest CME "Federal Reserve Observation" tool, the probability of the Federal Reserve maintaining interest rates unchanged in the 5.25% -5.50% range in November is 93.6%, and the probability of raising interest rates by 25 basis points to the 5.50% -5.75% range is 6.4%. The probability of maintaining interest rates unchanged by December is 64.4%, the probability of a cumulative 25 basis point increase is 33.6%, and the probability of a cumulative 50 basis point increase is 2.0%.