Ahead of today's CPI report, and in the aftermath of yesterday's historic market rout, consensus forecast was for yet another +0.2% M/M increase for the core print for the 36th successive month. Commenting on the number, Deutsche Bank's Jim Reid said that before the recent risk-off, he would have automatically said that the downside risks to the market from an upside inflation print were much larger than the upside market risks from a downside surprise. However, he notes, given the recent risk sell-off, there was scope for a decent relief rally on a softer number, while medium-term though, signs of higher inflation would be much worse for risk than softer inflation would be positive.
So with that in mind, moments ago the BLS reported that in what may be welcome relief for investors, CPI followed yesterday's disappointing PPI lower, and indeed came in softer than expected, with the headline CPI printing at 0.1% M/M (0.059% unrounded), below the 0.2% expected, and up 2.3% Y/Y - the lowest since February - and below the 2.4% consensus, and a steep drop from the 2.7% reported a month ago.
The core CPI likewise missed, printing 0.1% M/M (0.116% unrounded), below the 0.2% expected, and up 2.2% Y/Y, also below the 2.3% consensus.
The headline drop was mostly the result of lower oil prices as the energy index declined 0.5% in September after rising in August. The food index was unchanged in September, as an increase in the index for food away from home offset a decline in the food at home index.
Looking deeper at the core inflation print, it reflected a 3% monthly drop in prices for used cars and trucks following increases in each of the last 3 months, and the biggest drop in 15 years...
... while housing rents cooled, signaling that price gains may be easing, reducing pressure on the Fed to keep hiking and providing some relief to battered bond bulls and to Trump who has been bashing the Fed for hiking too fast.
Besides the drop in used-car prices, costs for new vehicles fell 0.1 percent, the first decline since April.
Away from energy and used-car prices, however, it was a different story, as categories showing increases included shelter, which accounts for about one-third of the CPI and rose 0.2 percent from August, which however was the smallest gain in three months. Owners-equivalent rent, one of the categories designed to track rental prices, increased 0.2%. Apparel prices increased 0.9%, the biggest gain since February, after a 1.6 percent monthly drop in August that was the most in almost seven decades. Airfares rose 1 percent.
Here are the highlights from the report, first prices rising:
- The shelter index rose 0.2 percent in September following a 0.3-percent increase in August. The indexes for rent and owners'
- equivalent rent both increased 0.2 percent in September, smaller increases than in August.
- The index for apparel rose 0.9 percent in September following declines in each of the prior 3 months.
- The motor vehicle insurance index rose 0.8 percent. The recreation index advanced 0.3 percent in September as the index for recreation services increased 0.7 percent.
- The medical care index rose 0.2 percent in September after declining in July and August.
- The index for physicians' services rose 0.3 percent, but the indexes for hospital services and for prescription drugs both declined.
- The index for airline fares continued to increase, advancing 1.0 percent.
- The indexes for household furnishings and operations, communication, education, alcoholic beverages, personal care, and tobacco all also rose in September
- The index for used cars and trucks fell sharply in September, declining 3.0 percent following increases in each of the last 3 months. The new vehicles index declined slightly in September, falling 0.1 percent.
Some other details from the report from Bloomberg:
- The increase in the core CPI brought the three-month annualized gain to 1.8 percent, after 2 percent
- Energy prices fell 0.5% from previous month; food costs were unchanged
- Prices for medical care advanced 0.2% following two months of declines; these readings often vary from results for this category within the Fed’s preferred measure of inflation due to different methodologies
- The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents