MNI US Inflation Insight, Sep'24: 25bp Cut Looks Locked In

Executive Summary

• Core CPI inflation was easily stronger than expected in August at 0.28% M/M (cons 0.2) after 0.165% M/M.
• Rental inflation surprised higher for a second month running, this time with the particularly heavily-weighted OER category at 0.50% M/M vs expectations of 0.3.
• Core services ex-housing was right at the high end of analyst expectations but with possibly a weaker read-through to its PCE counterpart. 
• To be revised after Thursday’s PPI report, initial tracking estimates put core PCE at 0.17% M/M in August.
• This, along with core CPI slowing to 2.7% annualized over the last six months, should continue to give the Fed confidence that inflation appears to be on a bumpy disinflation path.
• However, rental inflation has only seen one month back at pre-pandemic averages, and that was in June, which makes it harder to argue cutting in larger-than-25bp clips at this juncture, especially in tandem with latest labor market data.
• Fed Funds have continued to zero in on a 25bp cut next week, as we have argued for some time, with 28bp priced vs 32bp prior to CPI and 37bp prior to Governor Waller’s remarks last week. There are however still more than 100bp of cuts priced over the three meetings left this year (including next week’s).
• Focus will continue to remain on the labor market in the near-term.  

PLEASE FIND THE FULL REPORT HERE: USInflationInsightSep2024.pdf