• US inflation for September rose 2.4% year-on-year, slightly higher than expected.
• Inflation has fallen to the lowest level since February 2021.
• The US dollar has edged higher against the major currencies today.

US Inflation Slows for Sixth Straight Month

The US consumer price index (CPI) continued its downswing, dropping slightly in September. Inflation fell to 2.4% year-on-year, down a notch from 2.5% in August but above the market estimate of 2.3%. The drop in inflation was largely due to lower gasoline prices, while food and transportation prices increased. On a monthly basis, CPI rose 0.2%, in September, unchanged from August but above the market estimate of 0.1%.

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Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, ticked higher to 3.3% y/y, up from 3.2% in August and above the market estimate of 3.2%. Monthly, core CPI rose 0.3%, unchanged from August and above the market estimate of 0.2%.

The Federal Reserve should be pleased with the inflation data. CPI has now slowed for a sixth consecutive month and is at its lowest level since February 2021. Inflation is still above the Federal Reserve’s target of 2% but inflation is heading in the right direction and the Fed is more focused on the labor market, particularly at nonfarm payrolls. After two weaker-than-expected nonfarm payrolls releases, there was a surprising rebound last week, as September nonfarm payrolls jumped to 254,000, up from a revised 159 thousand and blowing past the market estimate of 140 thousand.

Today’s inflation data has not had much effect on rate cut odds, as the probability of a quarter-point cut in November remain around 85%. The Federal Reserve minutes, released on Wednesday, indicated that some members voted for a half-point cut in September although they may have been more comfortable with a modest quarter point cut. Fed Chair Powell had near-unanimous support for the half-point chop, but that is unlikely to repeat itself if the labor market remains strong for the rest of the year.

US Dollar Edges Higher, Stock Market Dips After CPI Report

Today’s inflation report was within expectations and has had little effect on the US dollar or the US stock market.

The US dollar has posted slight gains against the major currencies. The USD/JPY currency pair showed the most volatility, rising as much as 0.45% following the inflation report before reversing directions. Currently, USD/JPY is trading at 148.60, down 0.18%.

The US stock market opened a short time ago and is has posted slight losses.

The Nasdaq 100 Index is down 80 points (0.40%) at 20,189 points.

The S&P 500 Index is down 13 points (0.23%) at 5778 points.