The US inflation print didn’t rock the boat on Thursday (although there are signs of tariffs filtering through several categories to consumers), and fresh signs of a cooling job market saw equities rally and bond yields fall on Thursday, as investors recalibrated the Federal Reserve’s rate cut path to be more aggressive.
The headline consumer price index rose 2.9% year on year, the fastest since January, and up from 2.7% in June and July, matching expectations. Prices rose 0.4% from July, the biggest monthly gain this year and above forecasts, with shelter once again the largest driver.
Core inflation held at 3.1% for a second month, matching expectations and the February peak, with a 0.3% month-on-month rise. The steadiness of underlying prices highlights the Fed’s challenge. The labour market is softening quickly, but inflation has not fully retreated to target. But the more pressing matter is now jobs. Food costs accelerated to 3.2%, while used cars jumped 6% and new vehicles rose 0.7%. Energy prices increased for the first time in seven months, up 0.2%, as gasoline and fuel oil declines eased and natural gas stayed elevated at 13.8%. Shelter inflation eased slightly to 3.6% but remains the biggest component.
Credit: Bloomberg
Both readings remain above the Fed’s 2% target but effectively matched market expectations. They were overshadowed by jobless claims, which increased by 27,000 to 263,000, the highest since October 2021. The spike in claims, on top of weak payroll data and downward revisions to employment figures, reinforced expectations that the Fed will ease next week to counter an increasingly fragile labour backdrop and adopt a more dovish stance in the coming meetings.
Carpe Diem
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