September 2023 - CPI Preview: Inflation Could End Two Consecutive Months of Rising Trends

The Bureau of Labor Statistics will release the September CPI at 8:30 ET on Thursday. After two consecutive months of increases, economists expect inflation to reverse its upward trend in September.

Bloomberg data shows YoY CPI inflation will fall to 3.6% (vs. 3.7% prior), with annual core inflation decelerating to 4.1% from 4.3% prior. On a month-on-month basis, headline and core CPI inflation may both register a 0.3% increase (vs. 0.6% and 0.3%, respectively, in August).

■ Rental prices may decline more rapidly in September

Residential prices account for the largest proportion of the service category. Rental prices are likely to accelerate their decline in September.

Rent growth follows a seasonal pattern – prices generally go up during the spring and summer and go down during the fall and winter – and typically, September is the first month of rent declines. But this year, the slow season started a month earlier, and a 0.1 percent MoM decline in rents in August was followed up by a 0.5 percent MoM decline in September, according to Apartment List. On a year-over-year basis, rents decreased by 1.2 percent.

This cooldown is widespread nationwide; rents fell month-over-month in September in 85 of the nation's 100 largest cities.

Rent swings are largely driven by the balance between the number of vacant apartments available and the number of renters looking to move into them. A massive shortage of vacant units helped drive tremendous rent growth in 2021 and 2022, and today, the opposite is true. Apartment List's index showed the vacancy rate increased for 23 consecutive months, and while these monthly increases have plateaued a bit, the rate sits just above the pre-pandemic average at 6.4 percent.

■ Falling demand for used cars drives listing prices down

The Manheim Used Vehicle Value Index reported the major market segments again saw seasonally adjusted prices that were lower YoY in September, down 3.9% from a year ago. The unadjusted average price fell by 5.4% YoY.

Manheim estimated that used-vehicle retail sales in September were down 10% compared to August. The average retail listing price for a used vehicle decreased 0.7% over the last four weeks.

CarGurus data showed used car prices modestly fell by 0.35% in the last 30 days and decreased by 5.78% YoY.

■ Food inflation

The FAO Food Price Index compiled by the Food and Agriculture Organization of the UN averaged 126.3 points in September, up 1.3 points (1.0 percent) from August but standing 21.6 points (14.6 percent) below its value a year ago. This month's increase was led by a 5.3 percent increase in international coarse grain prices. Increased barge freight rates due to low water levels on the Mississippi River in the US partly contributed to the grain prices' increase, but this is only a temporary factor.

■ Other data to watch

The import price index will be announced this Friday. Bloomberg expected the index to increase by 0.6~0.7% MoM, up from 0.5% in August, due to higher energy cost in the last month, but excluding that, and import price remains flat.

The University of Michigan will also renew its update on 1-Year/5-Year inflation expectation on Friday. In the last month, the 5-Year expectation was 2.8%, and the 1-Year inflation expectation decreased to 3.2%.

■ What's next for the rate policy?

Rate hike expectations are lower compared to one month ago, even after the mixed employment report was released last week. We pointed out in the article "Yield Curve Turned Much Less Inverted. What Does It Mean?" that the job market tightness shown by the JOLTS report might be just temporary, and the latest nonfarm payroll report might be misleading because the increasing number of part-time workers led to duplication of data.

The rapid fall in oil prices in the first week of October ended the rising trend of the previous two months, meaning that inflation figures released in November are likely to fall further. Furthermore, the Israeli-Palestinian conflict raises concerns about the vulnerability of the economy. The market is likely to be more concerned about whether a recession is really about to come, especially given that term spreads are now narrowed sharply.

CME FedWatch shows that the market expects a 21.1% probability of raising interest rates in November, and the likelihood of a rate hike in December is 35.78%.

Relative video for Beginners: Understanding the CPI

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Author

Moomoo News

11 October 2023