The US consumer price index (CPI), a closely followed inflation gauge, rose 3.7% in September compared to a year ago. On a month-on-month (MoM) basis, CPI grew 0.4%, slower than the 0.6% recorded in the previous month. Meanwhile, core CPI, which excludes volatile food and energy prices, was up 4.1% year-on-year (YoY) and 0.3% on the month.<\/p>\n\n\n\n
In line with recent trends, the cost of shelter, which surged by 7.2% YoY, was the main reason for the increase in the September inflation as it accounts for around one-third of the overall CPI weighting. Energy costs likewise climbed 1.5% MoM, which includes the 2.1% uptick in gasoline prices and 8.5% on fuel oil. <\/p>\n\n\n\n
Excluding housing and energy, services prices, a key measure for the long term direction for inflation, advanced by 0.6% MoM. Lastly, food prices were up 0.2% for the third month in a row.<\/p>\n\n\n\n
Our View:<\/strong> While prices rose at the same pace as in August on an annual basis, signaling that there is a gradual slowdown in consumer prices, inflation is proving difficult to tame. <\/p>\n\n\n\n While the U.S. Fed left interest rates unchanged in September and is now in a wait-and-see mode, the higher-than-expected September CPI data may push the Fed to raise interest rates again. This, in turn, would cause the economy to slow further as it makes it more expensive for businesses and individuals to borrow money.<\/p>\n\n\n\n Currently, the Fed has already lifted borrowing costs to a range of 5.25% to 5.50% and is now debating on whether a final quarter-point rate hike is needed before leaving policy steady. Either way, inflation remains higher than the Fed\u2019s goal of 2% – and the Fed has made it clear that they plan on keeping interest rates elevated until inflation goes back within target range. <\/p>\n\n\n\n On the local front, a BSP\u2019s off-cycle rate hike is unlikely but a November move is still in play. With core inflation staying within reason, the odds of the Fed hiking in their next meeting are slim. Coupled with the fact that our own core inflation figures also sustained their decline, this would likely negate the need for the BSP to impose an unscheduled rate hike. <\/p>\n\n\n\n We note however, that a 25bps (0.25%) rate hike is still a real threat to be laid on the table on November 16, as the central bank will be factoring in both the hotter-than-desired headline numbers as well as the recent P1 transport fare hike.<\/p>\n\n\n\n