U.S. inflation slows in September

Markets tumble on prospects of higher rates

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Consumer prices in the United States increased less than expected in September on the back of a slower pace of increase in rental costs and falling energy prices. The data indicated that underlying inflation pressures eased slightly during the month of September.

Data from the Labor Department showed that headline consumer prices increased 0.1% on the month in September. The slower pace of increase came on the back of inflation rising 0.2% in the month before. During the twelve months to September, headline inflation was seen rising 2.3%. This marked a sharp decline after the annual inflation rate in August advanced 2.7%.

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The data missed the median estimates which forecast a 0.2% increase. With the September inflation report coming out slightly below the expectations, it is not expected to impact or change the course of the Fed decision.

The Federal Reserve has previously signaled, at its monetary policy meeting in September that it would hike interest rates one more time in December. The Fed also projected four rate hikes for the year ahead.

Despite the slump, the overall data indicates that inflation pressures will pick up again.

Excluding the volatile food and energy prices which shift on a month to month basis, the core inflation reading showed a 0.1% increase. This was a second consecutive month of increase in the core inflation rate. The core CPI advanced 0.2% for three months since May.

On an annualized basis, core inflation rate was seen rising 2.2% in the twelve months ending September.

U.S. equity markets frothy

Following the release of the inflation data, the U.S. Treasury yields extended the declines. The data added to the market turmoil already where investors shunned the risky equities. Investors believe that inflation could potentially overshoot the Fed’s 2.0% target.

The pickup in inflation is therefore expected to see the Federal Reserve potentially hiking interest rates at a faster pace.

Global equity markets, led by the U.S. posted a decline mid-week. The contagion spread quickly to the Asian and European markets the following day on Thursday last week.

The frothy markets come as the U.S. President Donald Trump continued to attack the Federal Reserve undermining its independence.

On two separate occasions, the U.S. President expressed his concerns about a faster pace of rate hike from the Fed. He called the rate hikes “ridiculous.” The U.S. President, however, denied meeting the Fed Chair.

Tump’s criticism of the Fed comes just a week after the Fed Chair Jerome Powell gave an optimistic outlook on the U.S. economy. He said that the U.S. economy was on track to maintain its current pace of growth calling it “remarkable.”

The U.S. economy is fuelled by a strong labor market. The U.S. unemployment rate was seen falling to 3.7% in September. This marked a fresh historical low. Wage growth was also seen rising at a strong pace, indicating that consumer price pressures will start to increase eventually.

Besides the Fed’s policy, Trump has also been attacking the OPEC nations. He continues to urge the oil-producing countries to increase production in a bid to lower oil prices.

Gasoline prices in the United States slumped 0.2% in September after surging 3.0% in August. In the recent OPEC meeting in Algiers, Russia and Saudi Arabia vowed to increase production.

However, officials in Saudi Arabia had previously signaled their preference for oil prices at around $80 a barrel.

Markets expect oil prices to surge as Iran is expected to be cut off from the global supply in light of the U.S. sanctions coming into effect from November.

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