US inflation drops to 2.4%, raising hopes for a base rate reduction

Last month, the consumer prices in America declined more slowly than anticipated as rising food and housing costs drove inflation.

According to the Bureau of Labor Statistics, the consumer price index (CPI), rose by 0.2 percent in September. The consumer price index (CPI) rose by 0.2 per cent to end-September compared to 2.5 per cent for the same period in August. This is the lowest annual increase since February 2021.

Reuters polled economists who expected the CPI to increase by 0.1 percent in September, and by 2.3 percent on a year-over-year basis.

The index of food prices rose by 0.4 percent compared to the previous month or 2.3% over the past year. The index of housing prices, which tracks rents, increased by 0.2 percent in September, and by 4.9 percent on an annual basis. The monthly rise was however lower than the 0.5 percent increase recorded in August.

The month saw a drop in energy costs of 1.9%, mainly due to a 4.1% decline in petrol.

The Federal Reserve is expected to continue cutting interest rates next month due to a cooling of inflation. In September , the US central banks lowered its benchmark policy rate from 5.25 to 5.50 percent to 4.75 to 5 percent.

A majority of Fed officials supported the larger-than-usual cut in interest rates by half a point. The minutes of last month’s meeting of the federal open-market committee reveal that supporters of the rate cut were “aware that such a recalibration would bring monetary policy into better alignment with recent inflation and labour market indicators”.

According to CME Group’s FedWatch Tool, early on Thursday the financial markets predicted a 76 percent probability that the Fed would cut rates by 25 basis points at its November policy meeting. About 24 percent of the time, rates would remain unchanged.

Richard de Chazal is a macro analyst with William Blair. He said that while the trend rate of the inflation will continue decelerate we could be entering a bumpier period in the coming months. This may be due to more difficult annual comparisons, noise caused by inclement weather, such as this current hurricane season, recent spikes in oil prices linked to the Middle East war, and other seasonal adjustment factors.

Paul Ashworth said that he thought the inflation data “consistent” with the Fed plans to reduce rates by 25bp (basis points) early next month.

Data released on Thursday revealed that the number of Americans who applied for unemployment benefits increased last week, after hurricane Helene ravaged Florida. Boeing also furloughed tens of thousands of workers during a strike by factory workers. Striking employees are not eligible to receive unemployment benefits. The industrial action has caused temporary layoffs in other Boeing-dependent businesses and the supply chain.

According to the Labor Department, the number of initial claims for unemployment benefits in the state increased by 33,000 to 258,000 (seasonally adjusted) for the week ending October 5.

Ashworth stated: “Claims are expected to rise even more in the next few weeks before eventually subsiding.”

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