U.S. inflation to continue to accelerate, wage pressures to build - ANZ

In September, core inflation in the U.S. came in below expectations at a rise of 0.1 percent in sequential terms, as compared with the projected 0.2 percent rise. On a year-on-year basis, core inflation remained at 1.7 percent for the fifth continuous month. The headline consumer price index rose strongly by 0.5 percent on a sequential basis and 2.2 percent year-on-year given the sharp rise in energy prices owing to the damage caused by hurricanes Harvey and Irma. The refinery capacity of the U.S. was heavily damaged by hurricane Harvey. Therefore, motor fuel prices rose sharply by 13 percent sequentially. Energy prices have accounted for about one-third of the total consumer price index.

The September meeting’s minutes of the U.S. Fed FOMC showed a solid divide over the drivers of low inflation and the policy implications. Even if FOMC members anticipate inflation to shift slightly to the left, there is probably a higher-than-usual degree of uncertainty around these projections, noted ANZ in a research report. The minutes indicated that “several” participants appear to be worried about inflation expectations coming in below the target level, although viewing it overall as “reasonably stable”. However, few participants view the expectations to be “low or slipping”.

“We continue to expect cyclical inflation and wage pressures to build. Our Wage Leading Index and the Atlanta Fed Wage Growth Tracker have been rising, pointing to wage growth accelerating modestly in coming months”, added ANZ.

Wages in manufacturing and construction sectors are rising above their trend in the last decade. The overall outlook for inflation continues to be more positive than usual, thanks to the convergence of structural supply side factors restricting pricing power, stated ANZ.

At 12:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -23.9814. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest