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US consumer prices saw no change in September since the month before, matching the weakest reading since the beginning of the year. With underlying inflation reportedly retreating, the latest financial data released by the Labor Department on Thursday supports the case for the Federal Reserve to cut interest rates in October for the third time in 2019.

Key Takeaways

• The consumer price index (CPI) rose 1.7% in the 12 months through September, the same as the month before.
• The reading was 0.1% below market expectations of a 1.8% rise. Core CPI rose 2.4% annually, also matching August’s figures.
• With core personal consumption expenditure (core PCE), the Fed’s preferred measure of inflation, at 1.8% rather than the 2% target range, all data supports another rate cut this month.

The flat consumer price index saw the weakest reading since the beginning of 2019 in September as drops in the cost of energy and used vehicles drove down the final figure, even as the cost of food and rent increased. Excluding the volatile components of food and energy, the CPI rose 0.1% after climbing 0.3% for the previous three months in a row.

Core CPI was held back by reduced growth in healthcare costs as well as decreases in the costs of clothing, new motor vehicles, and communications. Core CPI rose 2.4% annually in September as well as in August. Energy prices fell -1.4% in September after dropping -1.9% the month before, and gasoline prices fell -2.4% after dropping -3.5% the month before. Food costs rose 0.1% after seeing no change for the three months prior, and the cost of food consumed at home remained unchanged in September.

Owner’s equivalent rent of primary residence, which measures the cost homeowners pay to rent or receive for renting out a home, saw a 0.3% increase in September after a 0.2% gain the two months prior. Healthcare rose 0.2% in September after a 0.7% gain in August, and used motor vehicles and trucks prices fell -1.6% after rising for three months in a row before that. The cost of new motor vehicles dropped -0.1%. There were moderate increases in the costs of motor vehicle insurance, household furnishings, airline fares, and tobacco.

Snoozer of a CPI report, at least on its face.

Technically year-over-year core CPI is the highest of this cycle. But it actually missed expectations, rising just 0.1% m/m vs. 0.2% expected.

Not going to change anyone's minds. pic.twitter.com/oUdJlncuFa

— Brian Chappatta (@BChappatta) October 10, 2019

Inflation Data

The data lends strength to expectations that the Federal Reserve will cut rate cuts again for the third time this year at a meeting later this month. Minutes from the Federal Reserve September 17-18 policy meeting included comments from Fed officials on the risk to the record-breaking period of economic expansion currently underway in the US, stating that the risk has “increased somewhat."

A Tuesday report showed the biggest drop in producer prices in 8 months, affected partially by the 15 month trade war with China which has also had a negative impact on business investment and the manufacturing sector, which accounts for 11% of the US economy.  Other factors posing a threat to the expansion include uncertainty over Britain’s departure from the EU as well as a general economic slowdown being felt worldwide.

With core-CPE last measured at 1.8%, inflation is believed to be under the target range of 2% for this year. Economists expect inflation to increase and perhaps even overshoot its target next year due to the escalating tariffs on Chinese goods which now include a range of widely-purchased consumer goods.

Market Reaction

Spot gold last traded at $1,502.84/oz, down -0.22% with a high of $1,516.64/oz and a low of $1,501.68/oz. Weak inflation pressure may account for the downward momentum on gold in today’s session, as traders await updates on the geopolitical situations impacting trader sentiment today, such as Brexit, civil unrest in Hong Kong, and the US/China trade war.