This report continues the consecutive monthly drops in inflation since July.US monthly inflation, as measured by CPI, surprised to the downside and by some margin. Expectations were for a 0.3% monthly increase (representing a 7.3% year-on-year move) but in actuality, we saw only a 0.1% increase as energy prices continue to push down the overall rate of inflation in the short term. Year-on-year inflation stands at 7.1%, considerably better than the close to 9% inflation print in July and this report continues the consecutive monthly drops since then. This allows for a moderation in hawkishness from the Fed and we will more than likely see a 50 bps interest rate hike later this week – the era of 75 bps meeting hikes is done. This does not mean a pivot; rates are not suddenly going to start coming down again - inflation at 7.1% year-on-year is still high but the lagged effects of hawkish policy is working and this means a pause is now the medium term outlook while the Fed allows for inflation to catch up with monetary policy.
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