The published BLS report showed that inflation in the US in September in annual terms remained at the level of the previous month (3.7% YoY), slightly above the consensus forecast (3.6%).

Relative to the previous month, inflation slowed to 0.4% MoM after 0.6% MoM in August and also slightly exceeded market expectations (+0.3% MoM). More than half of the contribution to the structure of monthly inflation was provided by an increase in the cost of using housing, and a noticeable contribution was also made by the continued (although significantly slower compared to August) increase in gasoline prices and energy resources in general.

Core inflation (Core CPI), which does not include food and energy resources and is considered a more stable indicator of inflation, coincided with market expectations. Compared to the previous month, it maintained an increase of 0.3% MoM, continuing to decline in annual terms from 4.3% to 4.1% (at least for 2 years). More than 70% of the structure of core inflation was provided by an increase in housing fees. For the Fed, the most important thing now is the rate of slowdown in core inflation in services not related to the housing market – it is believed that this part of inflation is the most "difficult" to achieve the 2% goal, and most dependent on the strength of domestic demand and labor market tensions. In September, its monthly rate decreased slightly – to 0.4% MoM after 0.5% MoM in August.

Thus, consumer inflation, although it turned out to be slightly higher than the consensus forecast (in terms of the overall CPI), did not present such a negative surprise as production inflation a day earlier. The growth of the PPI index in September (2.2% YoY) was a record since April and significantly exceeded the consensus forecast (1.6%). Core inflation continues to slow, although it remains significantly above the Fed's target.

The inflation data is now interesting to the market primarily from the point of view of the possible reaction of the Fed, whose rate (5.25-5.5%) is already at its maximum in 2 years.

The September median forecast of the Fed assumed another rate hike before the end of the year with a minimum reduction in 2024, which was justified by too steady economic growth and too strong labor market. The next meeting will be held on October 31-November 1. Last Friday, a very strong report on the labor market for September was released. However, this week several Fed officials said at once that the decision to raise rates further is not predetermined and requires great caution, taking into account all the risks. Also, many Fed officials pay attention to the growth in yields of US government bonds, especially long-term ones, and interpret this as an additional tightening of financial conditions, which may reduce the need for further interest rate increases.

The published minutes of the Fed meeting on September 19-20 showed that although most participants in the meeting believed that another rate hike at future meetings would probably be appropriate, some said that a further hike might not be necessary. Noting the high uncertainty of economic forecasts, all FOMC members agreed that they have the opportunity to "act cautiously", assessing the risks of both insufficiently tight monetary policy to achieve price stability and causing excessive damage to the economy by too high interest rates. The statements of the representatives of the Fed since the beginning of the week and its protocol have formed optimism on world markets, which contributed to the correction of the dollar, a decrease in the yield of treasuries from the highs for 16 years and an increase in interest in gold.

The released data on inflation in general do not contradict this approach, especially in terms of core inflation, but did not give rise to additional optimism. The futures market now assumes with a probability of about 90% that the rate will remain unchanged at the November meeting, however, the estimate of the probability of maintaining the rate in December at the moment decreased to 61% from 71% the day before (the alternative is a rate increase).

Now new risks for energy markets are associated with the development of the Palestinian-Israeli conflict and its possible expansion. Global energy and food markets may be threatening a new spike in prices, but slowing global growth, a strike by automotive workers and tightening financial conditions carry additional risks to economic growth and employment. This combination complicates the Fed's task of determining further tactics and justifies a cautious approach so far.

Annual inflation, which has been continuously declining for 12 months from the 40-year high reached last June (9.1%), dropped to 3.0% YoY in June, and since July has turned up. In August, due to a jump in energy prices (+5.6% MoM), consumer price growth accelerated 3 times in monthly terms (up to 0.6% MoM) and became a record since June 2022. In September, the growth in energy prices slowed to 1.5% MoM, which contributed to a slowdown in the monthly inflation rate to 0.4% MoM (the market was waiting for a decrease to 0.3% MoM).

Gasoline prices increased by 2.3% MoM in September, which is much milder than the August jump by 10.5% MoM. But motor fuel maintains a high rate of price growth (+8.5% MoM after +9.1% MoM in August). Electricity has risen in price by 1.3% MoM.

By the end of September, Brent futures quotes were rising above $95/barrel, which was facilitated by the successful coordination of OPEC+ countries (primarily Russia and Saudi Arabia) to limit oil supply. Now world oil prices have slightly adjusted downwards, but serious uncertainty is associated with the development of the Palestinian-Israeli conflict and the possible involvement of oil-producing countries in it. According to IMF calculations, a 10% increase in oil prices could add about 0.4 percentage points to global inflation next year and reduce GDP growth by 0.15 percentage points.

Food prices maintained a 0.2% MoM growth for the third month in a row, having increased by 3.7% over the year.

Core inflation (excluding food and energy prices) it decreased in annual terms to 4.1% YoY (at least since September 2021) after 4.3% YoY in August, which coincided with market expectations. More than 70% of this increase was provided by an increase in housing fees (7.2% YoY). On a monthly basis, core inflation maintained the August growth rate of 0.3% MoM, which also coincided with the consensus forecast. The growth of housing fees accelerated to 0.6% MoM (maximum since May). In addition, the increase in car insurance prices contributed to the underlying inflation (price growth slowed to +1.3% MoM after 2.4% MoM in August, and for the year amounted to an impressive 18.9%), also increased in the price of recreation, personal services, new cars (+0.3% MoM), transport services (+0.7% MoM). Used cars (-2.5% MoM), clothing (-0.8% MoM) decreased in price.