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United States Inflation September 2019

United States: Inflation stable in September, increasing scope for additional rate cut

Consumer prices came in flat in month-on-month terms in September following the 0.1% increase registered in August. Lower prices for energy, new and used vehicles, and apparel offset higher expenses for food, shelter, and medical care services. The reading was in line with market expectations. Core consumer prices—which exclude volatile items such as food and energy—rose 0.1% in September, ending three consecutive months of 0.3% rises and marking the lowest result since the outset of the year.

Inflation was unchanged at August’s 1.7% in September, which missed market expectations of 1.8%. Likewise, core inflation was stable at 2.4% in September.

Subdued price gains in September should provide the Fed with additional ammunition in its deliberations to potentially cut rates again at the 29-30 October meeting. With inflation increasingly unlikely to accelerate noticeably in the near-term, the Bank should allow the Bank to focus more on waning economic momentum domestically and growing risks shrouding the global economic outlook, particularly the U.S.-China trade war and an uncertain Brexit outcome. James Knightley, chief international economist at ING, notes “with the growth outlook deteriorating the Fed has the flexibility to offer more “insurance” rate cuts. With PPI and wage growth slowing we may already be seeing a moderation in pipeline price pressures that results in the Fed retaining a relaxed attitude to inflation.”

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