CICC released a research report stating that the overall US CPI in September rose by 0.2% on a seasonally adjusted monthly basis (previous value 0.2%), and the year-on-year rate fell back to 2.4% (previous value 2.5%); the core CPI rose by 0.3% on a monthly basis (previous value 0.3%), and rebounded to 3.3% year-on-year (previous value 3.2%), both higher than market expectations. The fact that the inflation rate did not further decline on a month-on-month basis, coupled with the strong non-farm data previously, may cause the Federal Reserve to slow down the pace of rate cuts. It is predicted that the Federal Reserve will cut rates by 25 basis points in November, and the guidance for future rate cuts will be more cautious. The base case for the US economy remains a soft landing, but the path to a soft landing will not be smooth, and inflation data fluctuations like today's may reoccur. The recent significant rebound in US Treasury yields is a good reminder, and it also indicates that the pattern of US dollar interest rates remaining high for a longer period has not changed.

In September, the overall CPI in the United States slowed down, but the core CPI rebounded year-on-year, and neither showed further decline on a month-on-month basis, indicating that the downward trend of inflation still faces resistance.

Looking at the breakdown, the non-rent core service inflation (supercore) that the Federal Reserve paid the most attention to in September increased by 0.4% month-on-month, up from 0.3% in the previous month, and has been accelerating continuously since June. Among them, the prices of motor vehicle repairs (+2.8%), auto insurance (+1.2%), and medical services (+0.7%) accelerated. Airfare prices (+3.2%) saw a significant increase, and the prices of sports event tickets (+10.9%) jumped noticeably.

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The month-on-month increase in core goods prices rose to 0.2% (previous value -0.2%), mainly driven by the rebound in the prices of new and used cars. Among them, used car prices rebounded from -1.0% to +0.3% month-on-month, and new car prices rebounded from 0% growth to +0.2%. As mentioned last month, after the car sales software glitch in June, the inventory of used and new cars has been somewhat tight, which may lead to a slight price recovery in the coming months, as reflected in leading indicators such as the Manheim used car index. Clothing prices in September (+1.1% month-on-month) also saw a significant increase, but other goods such as furniture and home appliances (0%), medical goods (-0.7%), entertainment goods (-0.3%), and educational and communication goods (-0.7%) are still declining in price. This indicates that the supply of goods remains abundant, and the possibility of a significant price rebound in the short term is low.

In September, food prices increased by 0.4% month-on-month, mainly driven by the rebound of home food prices from zero growth to 0.4%. Among them, egg prices have been growing continuously over the past three months, with month-on-month growth rates of 5.5%, 4.8%, and 8.4% in July, August, and September, respectively, and the month-on-month growth rate of fresh fruits and vegetables also rebounded to 0.9%. As the election approaches, the rebound in food prices that ensure basic livelihood may be unfavorable for Harris. The good news is that with the decline in oil prices, energy prices fell significantly in September, which will have a positive effect on reducing the cost of living for residents.

The month-on-month increase in rent in September fell back to 0.3% (previous value 0.5%). Among them, hotel prices fell sharply from a 2.0% increase last month to a -2.3% decrease. The seasonally adjusted month-on-month increase in main residence rent fell back to 0.3% (previous value 0.4%), and the owner equivalent rent fell back to 0.3% (previous value 0.4%). The slowdown in rent inflation is a good direction, but it may continue to be sticky in the future. One reason is that with the inflow of immigrants, their housing demand may continue to be released, supporting rent inflation.

Inflation fluctuations, coupled with the strong non-farm data previously, may cause the Federal Reserve to slow down the pace of rate cuts. The Federal Reserve will cut rates by 25 basis points in November, and the guidance for future rate cuts will be more cautious.

Powell previously stated at the Jackson Hole conference that the labor force is no longer a source of inflation risk, but the rebound in employment and inflation data in September may weaken this view. It is expected that the Federal Reserve will continue to cut rates, but the pace will slow down. The reason for continued rate cuts is that the Federal Reserve does not want to fall behind the curve, and the reason for slowing down the pace is the concern about a resurgence of inflation. On balance, it is more appropriate for the Federal Reserve to cut rates by 25 basis points at the next meeting.

For the US economy, the base case is still hopeful for a soft landing, but the path to a soft landing will not be smooth, and inflation data fluctuations like today's may reoccur. This also serves as a good reminder not to over-extrapolate US economic data linearly. The recent significant rebound in US Treasury yields also indicates that the market's previous pricing of Federal Reserve rate cuts was too aggressive. The resilience of the US economy still exists, and the pattern of US dollar interest rates remaining high for a longer period has not changed.

Finally, it is noted that employment and inflation data in the coming months may be affected by a new round of strikes and hurricanes.The initial jobless claims announced on Thursday rose more than expected, which may have partially reflected the impact in this regard. Under such circumstances, the Federal Reserve would be more cautious, and policymakers would pay more attention to the totality of data rather than taking action based solely on a single data point.