The US consumer price index (CPI) climbed 3.7% year-on-year in September, unchanged from August and above the market estimate of 3.6%.

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Core CPI, which excludes food and energy, fell to 4.1% year-on-year in September, down from 4.3% a month earlier and matched the market estimate. This was the lowest level since September 2021.

On a monthly basis, CPI fell to 0.4%, down from 0.6% in August but above the market estimate of 0.3%. An increase in housing and energy prices were the drivers behind the rise in inflation. Core CPI remained unchanged at 0.3% and matched the market estimate.

The fact that inflation did not decline in September is a disappointment but the Federal Reserve will be encouraged by the decline in Core CPI. The core rate is considered a better indicator of long-term inflation trends.

The Federal Reserve still has work to do in the battle against inflation, which remains well above above the Fed’s 2% target. The Fed has signaled that rates could stay “higher for longer” and that further hikes remain on the table.

The Fed’s stance is not new, but what has changed dramatically in the past few weeks is a sharp rise in US Treasury yields, with 10-year yields rising to 4.8% last week, the highest level since 2007. This has raised borrowing costs significantly, which could slow economic growth and push inflation lower, without the Fed having to raise rates.

Will the Fed raise rates before the end of the year? The Fed says that option is possible, given that inflation remains high, but the markets are confident that a rate hike is unlikely before 2024.

US Dollar Higher, Stock Markets Nudge Lower 

In the Forex market, the US dollar has climbed higher against the major currencies in the aftermath of today’s inflation report.

 The EUR/USD currency pair and GBP/USD currency pair have dropped around 0.5% since the inflation report and NZD/USD is down by 0.8%.

US stock exchanges opened just a short time ago and are showing small losses. The S&P 500 Index is down 6.15 points (0.14%) at 4,371.09 and the Nasdaq 100 Index has dropped 12.85 points (0.09%) at 13,647.97.

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