The Department of Commerce will be releasing the monthly inflation readings today for the month of September. Economists anticipate that consumer prices were sluggish during the month.
On a month over month basis, headline inflation in the United States is set to rise by 0.1%. This marks the same pace of increase as in August. The inflation data for the year will, therefore, remain unchanged at 1.7%.
The core inflation rate, which excludes the volatile food and energy prices, is forecast to rise by 0.2% – 0.3% on the month. This, again, marks the same pace of increase as in August.
On an annualized basis, core CPI will, therefore, remain steady at 2.4%.
US CPI, Y/Y, August 2019
Consumer prices in the United States peaked at 2.1% in 2017. But, since then, prices have been trending lower.
The Federal Reserve is targeting the 2.0% inflation target rate. It was only in April this year that headline inflation briefly rose to 2.0% but started to weaken thereafter.
At the recent FOMC meeting, the central bank released its economic projections. According to the FOMC’s staff economic projections, inflation, as measured by the personal consumption expenditure (PCE), is forecast to average around 1.5% this year. It was a downward revision from June, where officials saw PCE averaging at 1.8% for this year.
The estimates on the core PCE rate is, however, unchanged at 1.8% compared to the projections from June.
The overall sluggish growth in inflation has been a concern, not just in the United States but globally as well. The weak pace of inflation comes amid weaker oil prices and reduced global demand for trade. It is also not surprising that the weakness comes as the economic cycle moves into the late growth stage.
September Inflation Could Rise Higher
In August, consumer prices rose just 0.1%. This came on the back of a 0.3% increase in July. In August, the modest gains came as an increase in shelter and medical care outperformed the declines in the energy sector.
The weak inflation comes as the energy index was down 1.9% in August, while the gasoline index fell 3.5% on the month.
Energy remains the biggest laggard in the inflation index. In August, the all-items and food inflation both rose 1.7%. The energy sector was down 4.4% in total, bringing the core inflation rate to 2.4%.
During the month of September, gasoline prices fell. But the rate of decline was muted. Gasoline prices were down just 1.1% on a month over month basis in September. This could potentially see a modest uptick in the inflation data.
Therefore, there is a good chance that the inflation data could ticker higher than the estimates.
It should be mentioned though that the Fed looks at the PCE data as a measure of inflation. Therefore, the CPI reports due today will not yield much influence. But considering that both CPI and PCE are seen to track one another, an uptick in today’s report could bode well for PCE estimates.
Today’s inflation data could, therefore, see some kind of market reaction. However, a single month’s data isn’t going to shift the expectations from dovish to hawkish. The PCE reports are due later in October and this is when we will be able to see how underlying prices pressures performed during September.