The US Department of Labor released a report on Friday indicating that the inflation gauge, the Consumer Price Index (CPI), rose by 0.3% month-over-month in September and 3% year-over-year, both lower than the predictions of economists surveyed by Dow Jones, who had forecasted 0.4% and 3.1% respectively.
The CPI serves as a broad indicator measuring economic costs in the United States. Excluding the more volatile food and energy sectors, the core CPI rose by 0.2% month-over-month in September and 3% year-over-year, below economists’ expected 0.3% and 3.1%.
Food prices saw a 0.2% increase month-over-month and a 3.1% increase year-over-year. Within the food index, meat, poultry, fish, and egg prices rose by 5.2% year-over-year; non-alcoholic beverage prices increased by 5.3%; grains and bakery product prices rose by 1.6%; fruit and vegetable prices increased by 1.3%; dairy and related product prices went up by 0.7%.
Energy prices rose by 1.5% month-over-month and by 2.8% year-over-year in September. Looking at specific categories, the electricity price index decreased by 0.5% month-over-month but rose by 5.1% year-over-year; the natural gas price index dropped by 1.2% month-over-month but increased by 11.7% year-over-year; gasoline prices went up by 4.1% month-over-month but decreased by 0.5% year-over-year.
Housing costs, which account for about one-third of the CPI weight, increased by 0.2% month-over-month and by 3.6% year-over-year in September; new car prices rose by 0.2% month-over-month and by 0.8% year-over-year; while prices for used cars and trucks declined by 0.4% month-over-month but increased by 5.1% year-over-year.
After the release of the CPI data, stock market futures continued their upward trend.
According to CNBC, John Kerschner, Head of Securitized Products at Janus Henderson, remarked that the CPI data today provided investors with the first piece of information from government data since the October 1st government shutdown, likening it to an oasis quenching the thirst of weary desert travelers.
“Investors are not disappointed. Lower-than-expected inflation led to a modest rebound in the bond market and ensured that the Fed will cut interest rates at next week’s FOMC meeting,” Kerschner said.
David Russell, Director of Global Market Strategy at TradeStation, noted that while inflation may not have slowed, its rise is no longer surprising.
Core commodity prices in September only rose by 0.2%. James Knightley, Chief International Economist at ING, stated that the data in the CPI report combined with the customs revenue from tariffs indicated an “effective” tariff rate of only 10%.
Knightley suggested that there are signs of “strong substitution effects emerging – US firms shifting to countries with lower tariffs to source products, leading to changes in import structures.”
“The result is that businesses are better able to absorb these more moderate cost increases than expected, with the impact on inflation being lower than anticipated so far,” he said. “Over time, we expect the effective tariff rate to rise, with a greater impact on commodity prices, but we still believe that tariffs will lead to a one-time price jump rather than triggering sustained inflation.”