U.S. headline inflation decelerates year-on-year in September, inflationary pressure likely to rise in coming quarters

U.S. headline and core inflation prints came in below market projection in September. Sequentially, the headline consumer price inflation rose mildly by 0.1 percent. The core rate, which excludes food and energy, also rose 0.1 percent.

On a year-on-year basis, the headline inflation slowed to 2.3 percent. The boost from energy prices to the headline inflation has begun fading. Energy prices dropped 0.5 percent in September on a sequential basis, whereas it rose 4.8 percent on a year-on-year basis. This is a huge decline from the 12 percent rate seen a couple of months ago. On the contrary, food inflation continued to be benign, rising just 1.4 percent year-on-year in the month.

The modest rise in the sequential core prices left the year-on-year pace stable at 2.2 percent. Since March, the core inflation rate has hovered between 2.1 percent and 2.4 percent. Underneath the hood in core prices, trends continued to be the same. Core goods prices dropped 0.3 percent on the month. Prices for new and used cars and trucks made marked negative contributions to the fall in core prices. Core services prices were up 0.2 percent. Price pressures for some important services categories ebbed a bit.

For the third quarter overall, the headline inflation and core inflation has come slightly below expectations. Inflationary pressures are expected to rise slightly in the quarters ahead, stated TD Economics in a research report. There is little debate that the labor market is tight, and domestic demand is being buoyed by tax cuts and spending. A solid US dollar is helping to limit price pressures for several imported goods.

“This well-behaved inflation backdrop supports our expectation for a continued gradual pace of rate increases, with the next move up likely at the December meeting”, added TD Economics.

At 13:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -78.727. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex