US consumer prices increased slightly more than anticipated in September, driven by rising food costs, although annual inflation saw its smallest increase in over three-and-a-half years. This supports the Federal Reserve’s trajectory for another interest rate cut next month.
Meanwhile, the US labour market is facing uncertainties as first-time unemployment claims surged to their highest level in over a year due to the Boeing strike and the effects of Hurricane Helene. These disruptions are expected to cloud labour market data through the end of 2024.
Inflation and Market Impact
The Labour Department reported higher-than-expected inflation figures for September, though economists believe rent moderation will lead to a more subdued rise in the Personal Consumption Expenditures (PCE) price indexes — the Fed’s preferred measure for inflation. The core Consumer Price Index (CPI) rose 3.3% year-over-year in September, slightly above the 3.2% rise in August. However, economists are predicting a more tempered rise in core PCE, with estimates ranging between 0.16% to 0.23%.
Economists expect inflation to remain within manageable limits, keeping the Fed on course to cut rates further, despite temporary distortions in labour data.
Labour Market Disruptions
Initial unemployment claims rose by 33,000, reaching a seasonally adjusted 258,000 for the week ending October 5, marking the largest jump since July 2021. The surge was influenced by both the Boeing strike and Hurricane Helene, which ravaged parts of Florida and the Southeast US. Strikes at Boeing and auto plants, notably in Michigan and Ohio, exacerbated the rise in claims, as did layoffs at Stellantis.
Economists predict that labour market disruptions, including the ongoing Boeing machinists’ strike, will temporarily affect payroll growth and employment data for October. Despite these challenges, the Federal Reserve is expected to discount the short-term impact of these events, treating them as temporary factors unlikely to sway its long-term monetary policy decisions.
Nancy Vanden Houten, lead US economist at Oxford Economics, notes that while payroll growth is expected to decline substantially in October due to the storms and strikes, the Fed will view these as short-term distortions and remain focused on broader economic trends.
