US inflation rises above expectations in September

US inflation rose by 3.7% in twelve months to September compared to 3.4% increase in August and beat 3.6% consensus, while core inflation, stripped for the most volatile components, jumped to 2.6% in September from 2.4% previous month, exceeding expectations for 2.5% rise.

Increased inflationary pressure in the US comes mainly from sharp rise in fuel prices (increased around 7% in September) that is likely to negatively impact other sectors of the economy, sending important signals to US policymakers in shaping monetary policy, as well as creating negative environment for President Trump’s administration ahead of November’s midterm elections.

The CPI report followed survey that was released earlier this month and showed further weakening of consumer sentiment, eroded by rising prices due to US war in Iran and Trump’s import tariffs that also contributes to inflationary pressures.

The future actions of the US central bank in coming months will be in focus after the Fed raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range, in the first rate hike in three years, and also signaled further policy tightening in the months ahead.

The FOMC is widely expected to keep interest rates on hold in its meeting on October 28, after softer than expected US labor data and PCE (Fed’s preferred inflation gauge) cooled the sentiment, but markets expect one rate hike in December and see potential for Fed entering tightening cycle, if inflation remains in upward trajectory.