U.S. CPI increased 0.4% month-over-month in September (consensus 0.3%) and core CPI, which excludes food and energy, rose 0.3% (consensus 0.3%). More than half of the increase in total CPI was driven by a 0.6% increase in the index for shelter. On a year-over-year basis, total CPI was unchanged at 3.7% while core CPI dropped to 4.1% from 4.3% for the 12 months ended in August. The all items index less shelter was up just 2.0% year-over-year and the services index less rent of shelter was up 2.8% year-over-year. The cost-of-living crisis deepens as real wages continue to suffer, inflation-adjusted earnings rose 0.5% from a year earlier, a second month of decelerating earnings growth.
The bond market looked at the hot core services inflation knowing Powell said the Fed would be watching very closely in terms of core PCE. The cpi suggests underlying pressures on service sector pricing remain not of the Fed’s liking after an earlier soft period. Core CPI goods inflation continues to drift down with falling consumer sentiment. We will look to the holiday shopping season with Thanksgiving, Black Friday and Cyber Monday all ahead next month.
US August 2023 Highlights
CPI
- US CPI (M/M) Sep: 0.4% (est 0.3%; prev 0.6%)
- US CPI (Y/Y) Sep: 3.7% (est 3.6%; prev 3.7%)
A reminder from August…
Core inflation:
- US CPI Core (M/M) Sep: 0.3% (est 0.3%; prev 0.3%)
- US CPI Core (Y/Y) Sep: 4.1% (est 4.1%; prev 4.3%)
Real Earnings
- US Real Avg Hourly Earnings (Y/Y) Sep: 0.5% (prev 0.5%)
- US Real Avg Weekly Earnings (Y/Y) Sep: -0.1% (prevR 0.2%)
Where the Prices Changed
- Shelter prices rose 0.6% (vs 0.3% in August), accounting for over half of the increase.
- An increase in the gasoline price was also a major contributor to all items monthly rise (2.1% vs 10.6%).
- The energy index rose 1.5% over the month.
- The food cost increased 0.2%, as it did in the previous two months.
- The index for food at home increased 0.1% over the month while the index for food away from home rose 0.4%.
It appears the surge in prices is over with supply chains mostly healed. Services inflation is the directional key with consumer demand having shifted back toward services from goods.
Lower spending on goods, ongoing improvement in supply chains and falling shipping costs should continue to ease price pressures in coming months. The deflationary pull from improved supply chains will lessen with order now largely restored at US factories and ports. However, there are many possible shifts with the multiple geopolitical powder kegs out there with Russia and China.
A reminder we are coming off June 2022 9.1% inflation rate which was the highest in four decades. CPI has moderated after resurging in August with aggressive Fed interest rate rises.
The new data also reflects an update to the weights of goods and services in the spending basket to capture changes in consumer preference. The Labor Department previously updated every two years but starting with January’s release will revise them annually.
Services Inflation Peaked?
- Services inflation in the United States eased for the eighth month to 5.16% year-on-year in September 2023, the lowest since March 2022, from 5.40% in the prior month.
Market Reaction (updated)
Markets reacted by driving higher yields across the Treasury curve while retaining a mild bear flattener on the day.
- The two-year Treasury yield jumped by about 6bps
- The ten-year yield increased 8bps post data.
- The dollar firmed and equities lost earlier momentum.
- Fed funds futures drove December contract pricing up by about 4bps to roughly 50–50 odds of a hike by then.
Shelter Costs Adding to Homeless
Shelter costs, the biggest services’ component and make up about a third of the overall CPI index.
Rent Inflation
Rent Inflation in the United States decreased to 7.15 percent in September from 7.27 percent in August of 2023, registering the lowest reading in 10 months
Housing Utilities
Food Inflation Persistently High, But Falling
Food inflation in the United States eased to an over two-year low of 3.7% year-on-year in September 2023, from 4.3% in the prior month and a peak of 11.4% in August 2022. Prices slowed down for food at home (2.4% vs 3% in August) and food away from home (6% vs 6.5%). On a monthly basis, food prices went up by 0.2% in September, the same pace as in each of the previous two months.
Transportation Inflation Persists
The effects of the coronavirus pandemic, then the supply crisis and throw in the Russian invasion of Ukraine on top have weighed on prices. Since many businesses closed and lockdowns were imposed, denting economic activity leaving the world vulnerable. A jump in commodities and material costs, coupled with supply constraints pushed producer prices up and some companies are passing those costs to clients.
“I’m making more money…But I don’t see it because I’m paying more money for stuff now.” Low-wage workers are getting sharp raises. Inflation is eating them up. via Greg Ip WSJ
From the Traders Community News Desk