US Core Inflation Unabated, Likely to Rebound
Energy prices have significantly weakened, leading to a downward trend in the U.S. CPI data for September, but food and core goods items have seen a substantial increase, coupled with the resilience of core services, which has resulted in a lower-than-expected decline in CPI and no weakening of core CPI. Assuming a month-on-month increase of 0.2%, September inflation may be the low point for the year, with a high probability of rebounding later. The low base of last year's November-December period, along with the recent strengthening of oil prices and the rebound in economic fundamentals, both exert upward pressure on inflation, implying that the inflation factor in the Federal Reserve's decision-making may once again expand.
Event: In September, the U.S. CPI increased by 2.4% year-on-year, higher than the expected 2.3%, and down from the previous 2.5%; the CPI increased by 0.2% month-on-month, higher than the expected 0.1%, and unchanged from the previous 0.2%; core CPI increased by 3.3% year-on-year, matching both the expected and previous 3.2%; core CPI increased by 0.3% month-on-month, higher than the expected 0.2%, and unchanged from the previous 0.3%.
The significant weakening of energy prices led to a downward trend in September CPI data, but the substantial increase in food and core goods items, along with the resilience of core services, resulted in a lower-than-expected decline in CPI and no weakening of core CPI:
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The U.S. CPI year-on-year in September continued to weaken from the previous month (2.6% to 2.4%), mainly driven by the energy item, while other items showed a clear rebound. Looking at the main items, the food item's month-on-month margin strengthened (0.1% to 0.4%); the energy item's month-on-month decline widened (-0.8% to -1.9%), mainly driven by the drop in oil prices in early September; core goods turned positive (-0.2% to 0.2%), with clothing (0.3% to 1.1%) and transportation products (-0.3% to 0.3%) showing a significant month-on-month increase, highlighting the inflationary pressure on the goods side once again; core services remained unchanged from the previous month (0.4%), with services still in good shape, corresponding to the significant increase in service industry employment in September, among which the housing rent item's month-on-month narrowed (0.5% to 0.2%), but medical care services (-0.1% to 0.7%) and transportation services (0.9% to 1.4%) expanded month-on-month.
The inflation data that exceeded expectations, together with the previous non-farm data, reflect the recent strengthening of U.S. economic data. Looking ahead, there is pressure for inflation to rise again, which may hinder the Federal Reserve's decision-making:
The recent strengthening of U.S. economic data since August is largely due to the reflexivity of its financial conditions: Historically, financial conditions lead the U.S. economic fundamentals by about a quarter, and the cycle "U.S. economic downturn → early trading of recession/interest rate cuts → U.S. Treasury yields decline → financial conditions ease → U.S. economic upturn" has occurred several times in the past two years. Since May, U.S. Treasury yields have declined by about 100 basis points, objectively serving as an early interest rate cut effect.
September inflation may be the low point for the year, with potential for rebounding pressure later: Assuming a month-on-month increase of 0.2%, September inflation may be the low point for the year, with a high probability of rebounding later. The low base of last year's November-December period, along with the recent strengthening of oil prices and the rebound in economic fundamentals, both exert upward pressure on inflation, implying that the inflation factor in the Federal Reserve's decision-making may once again expand.
Ease of trading has suffered a temporary setback, with a relatively greater impact on U.S. Treasuries, and relatively favorable for U.S. stocks and the dollar, but risks should also be vigilant: Ease of trading has suffered a setback:
After the release of the inflation data that exceeded expectations, market interest rate cut expectations continued to adjust, U.S. Treasury yields continued to rise, and the dollar strengthened; U.S. Treasuries: In the context of the recession trade being proven false and the economy marginally strengthening, the short term may be more volatile, and further declines would require seeing weaker U.S. data, which still needs to be observed; U.S. stocks: The recession trade being proven false + this round of interest rate cuts is closer to the preventive interest rate cut script, which is generally favorable for U.S. stocks, but in the short term, there is a need to be vigilant about high valuations and the pressure of market concentration; The dollar: It may stabilize in the short term, with limited room for further decline. The resilience of the U.S. economy remains strong, coupled with the fact that major central banks around the world have all started interest rate cut channels, which supports the dollar.
Risk warning: The resilience of the U.S. economy exceeds expectations, U.S. inflation rebounds again, and the Federal Reserve's stance is hawkish.