Based on the combined CPI and PPI data, we now calculate that the Fed’s preferred core PCE deflator price measure increased by 0.24% m/m in September which, at 2.9% annualised, is a little hotter than we’ve seen in recent months. Admittedly, it would leave the 3m annualised core PCE inflation rate at 2.1%, while the 6m annualised rate would decline to 2.2%, from 2.4%, and the 12m annual rate would ease back to 2.6%, from 2.7%. Nevertheless, alongside the unexpectedly strong labour market data, September’s price data suggest that more than a few Fed officials might regret starting their easing cycle with a bigger 50bp rate cut. We anticipate a more modest 25bp reduction at the FOMC meeting early next month. The data aren’t strong enough to justify leaving rates unchanged.
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