US: September CPI rises less than expected – RBC CM

US September CPI report showed a weaker-than-expected increase of only 0.1% down from the 0.2% increase in August and expectations that today’s report would match the 0.2% gain, explains Paul Ferley, Assistant Chief Economist at RBC Capital Markets.

Key Quotes

“Energy prices dropped 0.5% with food and beverage prices rising 0.1%. Those were generally in line with expectations. The downward surprise was concentrated in the core, or ex food and energy, measure which rose 0.1%.”

“The annual increase in core inflation held steady at 2.2% which helped ease concern about the inflationary consequences of an economy operating beyond capacity given the report last week that the September unemployment rate dropped further to 3.7% and thus further away from the Fed’s view of equilibrium unemployment being in a range of 4.3% to 4.6%.”

“Our expectation is that today’s report will not prevent the Fed from tightening further but will keep the pace gradual.”

“Our forecast assumes that the upper end of the Fed’s target range rises from a current 2.25% to 2.50% the end of this year and to 3.50% by the end of 2019.”