On October 12th local time, the US Bureau of Labor Statistics released data showing that the Consumer Price Index (CPI) increased by 3.7% year-on-year and 0.4% month on month in September. Excluding food and energy prices, the core CPI increased by 4.1% year-on-year and 0.3% month on month.
Data shows that the US CPI in September slightly exceeded expectations on a month on month basis. The CPI in September fell from 0.6% in August to 0.4% on a month on month basis, remaining unchanged at 3.7% year-on-year. The core CPI remained unchanged at 0.3% on a month on month basis, and fell back to 4.1% year-on-year.
Energy prices and housing costs have led to CPI slightly exceeding expectations
Data shows that the CPI energy item recorded a year-on-year increase of -0.5% in September, an increase of 3.1 percentage points compared to August, mainly contributed by the CPI gasoline item. In September, international crude oil prices continued to rise, driving the average gasoline price in the United States to above $4.3 per gallon.
The global macro team of Huatai Securities believes that looking ahead, the conflict between Palestine and Israel is heating up, and global crude oil prices may fluctuate, leading to uncertainty in the subsequent trend of the energy sector.
According to a research report by CICC, the increase in gasoline prices is the result of the global oil price surge since July. After entering October, due to increased geopolitical risks in the Middle East region, oil prices rebounded after a brief decline, adding to the uncertainty of gasoline price trends. The rise in oil prices not only affects energy prices, but also spreads to other prices, such as transportation and transportation service prices. The US September PPI increase announced this week exceeded expectations, with nearly three-quarters of the contribution coming from the rise in energy commodity prices.
In addition, the equivalent rent of homeowners in housing increased by 0.6% month on month, an increase from the previous month, and the resilience of inflation in services other than housing still exists.
The macroeconomic research team of Caitong Securities pointed out that overall, due to factors such as a strong labor market and the expansion of strikes, inflation in some service items will fall slower than expected and will take longer.
Unexpected inflation data may make the Federal Reserve's policy choices more cautious
After the data was released, the Chicago Mercantile Exchange's "Federal Reserve Watch" tool showed that the market had a 93.6% probability of the Federal Reserve maintaining interest rates unchanged in the 5.25% -5.50% range in November, and a 6.4% probability of raising interest rates by 25 basis points to the 5.50% -5.75% range. 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%.
The rapid rise in US inflation data for two consecutive months will lead to the Federal Reserve being more cautious in its future monetary policy choices.
Zhang Jun, Chief Economist of Galaxy Securities, believes that the potential risk of inflation has increased, supporting the Federal Reserve's consideration of raising interest rates again: although the probability of a "secondary inflation" is still low, short-term risks such as upward economic growth, labor market resilience, strong housing prices, and geopolitical challenges in the energy market cannot be underestimated. On the basis of facing risks such as production cuts and geopolitical factors in the energy market, the pressure of the Federal Reserve to control inflation has not diminished, and the possibility of another interest rate hike within the year should not be ignored.
The Overseas and Current Affairs Group of China Merchants Securities pointed out that it is expected that the inflation center in the United States has systematically shifted upwards, and inflation data is difficult to eliminate market differences regarding the Fed's policy path. Although the inflation data for this period slightly exceeded expectations, it cannot dispel market divisions over the Fed's policy: it will not increase pressure on the Fed's November resolution, but it cannot dispel expectations of further interest rate hikes in December or later.
The Federal Reserve has begun to guide the market to pay attention to the risk of interest rate hikes. Once the unemployment rate rebounds and resonates with the sharp decline in US stocks, the Federal Reserve will end interest rate hikes or even shift towards rate cuts. However, before this change occurs, it is necessary to see worse employment data and deeper declines in US stocks.
The global macro team of Huatai Securities pointed out that considering the significant tightening of financial conditions in the near future and the expected continued cooling of employment and inflation pressures, the probability of interest rate hikes from November to December may be less than 50%. The Federal Reserve will continue to observe the impact of previous interest rate hikes and the trends of growth and inflation, in order to decide whether to raise interest rates from November to December.
Recently, long-term interest rates in the United States have significantly increased, and financial conditions have significantly tightened. Federal Reserve officials have also released dovish signals, as the tightening of financial conditions has reduced the need for the Federal Reserve to continue raising interest rates. In addition, the US economy faced many risks in the fourth quarter, including auto union strikes, government shutdown risks, and student loan interest repayment, with growth likely to decline significantly.
Finally, although the month on month inflation in September exceeded expectations, partly due to the boost from entertainment, hotels, and other summer travel related sub items. As the summer consumption boom passes, related sub item inflation may marginal decline, and the previously announced core PCE in August was only 0.1% month on month, which was lower than expected. The Federal Reserve can still wait for subsequent inflation data to confirm the future trend of inflation. Therefore, the probability of a 25 basis point interest rate hike from November to December may not be higher than 50%; If inflation continues to exceed expectations in the future, the probability of interest rate hikes will increase.
Although the macroeconomic research team of Caitong Securities pointed out that although the CPI remained flat last month and did not decline, the interest rate hike may still be suspended and the duration may be longer. On the one hand, although the CPI growth rate remained flat last month, the core CPI has continued to decline, and only some of the service items are relatively resilient. Currently, there is no need to raise interest rates again. On the other hand, based on the recent intensive voices of Federal Reserve officials, due to the resilience of the economy and employment, the Federal Reserve may lean towards a longer high interest rate environment compared to higher interest rate peaks.
Zhang Xiaochong, a reporter from Beijing News Shell Finance