Inflation report

The expected US inflation report for the month of September was published yesterday by a short headed BLS. The report came slightly better than expected at 3.019% vs 3.1% for consensus. As you can see in the lower part of the chart below, the trend for CPI is upward sloping, not down, and if we take the 3 month average and annualize the result, we get 4.75%. So we do have an inflation problem, and it’s getting clearer that tariffs are pushing goods prices up. At the beggining, price increases were absorbed by companies, but now that’s starting to permeate into the consumer purview. At this point, this fact will be relegated to a sentence in the Fed’s chairman speech post FOMC, as it is discounted they will lower rates both next week and in December. Surprisingly, the bond market has not reacted to the news, and the year T-bond is basically anchored at 4%, at least for now. They are the ultimate judge on inflation risks, and as of today, they see no problem. Next stop is next Wednesday, with the FOMC decision.

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