Economy

The inflation fight stays on.

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The much anticipated CPI data was released, and headline inflation rose for a second consecutive month, signalling the sticky nature of major components of inflation contributors and is largely driven by high gasoline prices.

Markets took the news in stride and swung between gains and losses throughout the session, only to rise back in the final minutes of the trading session. The spillover of a higher energy price tends to seep into transportation and commodities, eventually pushing prices up.

Transportation, Rental and Motor vehicle insurance

Indeed, these components are also big fuels for the inflation narrative in August. Housing costs have not hit 40 straight months of gains but at a slower pace than before.

Inflation cools on an annual basis.

Even as raging inflation is simmering, the Fed will likely stay on course for a longer period of elevated interest rates. Some progress seen in Core price inflation which excludes the volatile items such as food and energy, has increased by 0.3% on a monthly basis but dropped to 4.3% on an annual comparison. This is the lowest level seen in September 2021.

The Fed should stay put in rate hike decision.

We can expect the Fed to maintain its interest rate level, given further evidence that inflation is still moving downward while the labour market is moderating, given recent data. Market participants are pricing in a pause in rate hikes at the September FOMC meeting with a 97% probability.

November rate hike is still on the horizon.

Given mixed results, we are keeping the likelihood of a November rate hike alive as further policy tightening might be warranted. As gasoline prices shift upwards, the headline consumer price index will likely rebound and complicate the Fed’s work.

What’s on the menu today?

8.30pm: Core Retail Sales (MoM), Initial Jobless Claims, PPI (MoM)

It will still be another mega economic data day. We are hoping for a softer retail sales print which could help signal that consumer-driven inflation could ease, and that would be marvellous if it has the blessing of stronger Initial Jobless claims to further evidence of a cooling labour market.

Likewise, a weaker PPI print will mean producers are not so caught up with the worry of input cost; thus, price pressure can further ease the economy.

It is 14 September, Thursday, 8.50 am in Singapore and 8.50 am in New York. Let us wrap this week strong as we shift toward a possible volatile trading session again.