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Morgan Stanley highlights the "stronger underlying cyclical components" seen in the September CPI report, which were offset by more volatile categories (eg airfares).

  • The 0.24% overall core M/M increase was below MS's 0.32% expectation, and they see this as largely due to "a second consecutive decline in used car prices which contrasted with our expectation for a moderate bounceback." But they expect used car prices to shift higher in coming months.
  • They also saw the sharp drop in airfares as a surprise, but likewise expect "some flattening out or even modest rebound in the months ahead".
  • Core services inflation, in contrast, was roughly in line with MS's expectations, with rents rising sharply.
  • "This upside in the more cyclical and persistent components like rents and owners' equivalent rents was the key story in the September CPI report and that should provide an important source of support that is likely to keep the inflation data sequentially firm in the months ahead."