U.S. inflation still flying high – Nordea
10.10.2019, 13:56

U.S. inflation still flying high – Nordea

Anders Svendsen, an analyst at Nordea Markets, notes that the U.S. core CPI inflation remains at the highest in more than 10-years despite cooling momentum.

  • “Core CPI increased slightly less than expected in September, while remaining unchanged at 2.4% y/y. The main culprits of the weaker-than-expected momentum in core CPI was a 1.6% drop in used-car prices during September, while new vehicle costs were down 0.1% and apparel prices fell 0.4%. Headline CPI also increased slightly less than expected and headline CPI inflation is trending lower due to decreasing energy prices.
  • Core CPI has been above or at 2% since March-2018, to a large extent driven by growth in core services prices. However, over the last months core goods prices have clearly increased and now stand close to the highest level since 2012 in year-over-year terms.
  • Stronger inflationary pressure has also started to appear in Fed’s favourite inflation measure, Core PCE, which hit 1.8% y/y in August. Even if Core PCE converges towards the 2% target over the next months, we don’t expect it to have much implication for monetary policy. Fed has earlier indicated that they would like to see inflation above 2 % for a prolonged period to be in line with its symmetrical 2% target.
  • More importantly is the contraction among US manufacturers and weaker growth among US non-manufacturers. Therefore, we expect another 25bp rate cut in both October and December with risks tilted towards another cut in 2020.”

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