Consumer Prices Continue Steady Incline, Support Gradual Tightening

Mixed consumer price data headlined the economic data released today.  Overall consumer inflation rose in-line with expectations, at 0.3% for the month, bringing the 1.5% YoY level to its highest since October 2014.  The main driver behind the increase was a surge in energy prices (+2.9%), while food prices remained unchanged for the third consecutive month.  With September’s CPI figure matching the market consensus, a rate hike following December’s FOMC meeting remains the most likely outcome, currently carrying a near 70% probability.  Core inflation was a bit softer, reported at a 0.1% rise for September which fell below median forecasts of +0.2%.  The corresponding YoY reading decreased to 2.2% from 2.3%.  Increased pricing for housing rentals and airfare supported the core level despite being weighed down by declines in automobile and apparel prices.  The lower core data figures emboldened the case for the “gradual” tightening of the monetary policy, as previously communicated by the Fed.  The US dollar slumped 0.3% today against major currencies with the 2017 rate outlook still difficult to predict.  

Overseas, the U.K reported its highest level of consumer price increase since November 2014.  Britain’s September CPI reading of +1.0% exceeded expectations of 0.9%, with the rise chiefly attributed to increases in clothing, hotel, and fuel prices.  The British pound responded with a jump to a six-day high of $1.23/GBP, partially boosted by legal reports that UK parliament will have to revise its proposed exit agreement with the EU.  European equities finished higher on the day, led by energy stocks whose prices benefitted from oil reversing losses from the previous day.  Investors continue to track weekly crude stockpiles while keeping November’s OPEC meeting on the radar, searching for any progression towards an implementation plan for the much-discussed production cuts.

With the third quarter earnings season underway, all three major U.S. stock indexes finished up 0.4%-1% on the day, highlighted by above average quarterly reports from Goldman Sachs and Netflix.  Treasury yields/swap rates are down 1-3 bps across the curve, with the yield on the 10-year Treasury sitting at 1.74%. The increase in crude prices has pushed WTI to $50.30/barrel and Brent near $51.70/barrel.