US DATA
The upside surprise in September CPI (headline 0.18% M/M vs 0.08% expected, Core 0.31% vs 0.25% expected) was driven by multiple factors - which may not be translated into the Fed's preferred PCE gauge, potentially mitigating the upside surprise from a market perspective - see image below for summary.
- First and foremost, both core goods and core services surprised to the upside.
- Core services came in high with a 0.36% M/M print (0.31% expected, 0.41% prior), even though OER (0.33% vs 0.36% exp, 0.50% prior) and rents (0.28% vs 0.32% exp, 0.37% prior) each cooled more than expected - as did lodging (-19%, vs +0.5% expected, +1.75% prior).
- That's largely because airfares (+3.16% vs 0.5% exp., 3.86% prior) and car insurance (+1.19% vs 0.7% exp., 0.56% prior) each came in on the high side. Not in the table: medical care which rose 0.4% after declines in each of the past 2 months, with physicians' services up 0.9%.
- Notably the upside surprise categories for the most part won't translate fully into the PCE print so that may be mitigating the reaction to the CPI upside.
- Core goods printed 0.17% M/M (0.15% expected, -0.17% Aug), despite unexpectedly low used car price inflation (0.31% M/M vs 0.9% consensus and -1.0% prior). Apparel (+0.9% after 0.3%) and new vehicles (+0.2% after 0.0%) helped keep the print elevated.
- On Headline, food price inflation came in double expectations (0.40%), with Energy (1.9% roughly in line).
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