US CPI inflation slowed less than anticipated by the market, with a rise of 0.1% m-o-m versus -0.1% expected. The y-o-y print was 8.3%, a modest deceleration versus 8.5% in July. The surprise was the sharp increase in the core CPI print (+0.6% m-o-m, double market consensus). The y-o-y print picked up to 6.3% from 5.9% prior. The increase in core inflation was broad-based, suggesting stubborn inflation in many sectors of the economy. Notably, new vehicles rose 0.7% m-o-m, drugs rose 0.4% m-o-m, medical care rose 0.8% m-o-m. The two categories that stood out were the sharp increase in rents (+0.74% m-o-m) as well as in food prices (+0.75% m-o-m). Regarding energy prices, while gasoline prices fell sharply in August (-10.6% m-o-m), electricity and gas prices both rose (+1.5% m-o-m and +3.5% respectively). The producer price index (PPI) for final demand decreased 0.1% m-o-m and increased 8.7% y-o-y. Excluding the food and energy components, core PPI climbed a larger than forecast 0.4% in August and was up 7.3% y-o-y. While gasoline prices eased in the month, producers faced higher costs for services and some goods as construction equipment and beverages.
US economic data
August retail sales beat on the headline at +0.3% m-o-m (expectations were at -0.1%), but July was revised down (from flat to -0.4%) and the “control group” (which is watched closest) fell short in August (flat vs. consensus at +0.5%) and saw a sharp downward revision to July (from +0.8% to +0.4%). The Sept. Empire Manufacturing survey was strong on the headline at -1.5 (vs. consensus of -12.9 and vs. -31.3 in August). The new orders index climbed 33pts. to 3.7, indicating a slight increase in orders, while the shipments index surged 44pts. to 19.6, pointing to a rebound in shipments after they declined significantly last month. Prices paid were reported lower. The Sept. Philadelphia Fed report was soft at -9.9 (vs. consensus of +2.3 and down from +6.2 in August). The new orders index fell 13pts. to -17.6, and the shipments index fell 16pts. to its lowest reading since May 2020 but remained positive at 8.8. The inflation news in the report were mixed. The Reuters/University of Michigan Consumer Sentiment Index picked up 1.3pts. in the preliminary Sept. survey to 59.5, which was just above the consensus of 59.3. It was its third consecutive increase, lifting the index to its highest level since April, however the 59.5 read remains well below the pre-pandemic high of 101.0, and is still near its lowest level since September 2011. On a y-o-y basis, sentiment is down 18.3%, which remains consistent with a bearish outlook for economic activity. Consumer inflation expectations moderated, yet they also remain at elevated levels still.
Energy in Europe
The European Commission will propose a temporary revenue cap on “inframarginal” electricity producer, which would be set at €180 per megawatt-hour, with surplus revenues above the cap used to support energy consumers. Moreover, there was a windfall tax proposal on other activities in the oil, gas, coal and refinery sectors which would be applied on 2022 profits that are more than 20% above the average profits over the most recent 3 years. Finally, France would be capping the increase in energy prices for households to 15% from January, and the country’s power-grid operator said that they may have to issue alerts to encourage a reduction in energy consumption over the next six months. At the same time, European natural gas futures continued to rebound from their one-month low on Monday, gaining +9.70% to €218 per megawatt-hour.