📝U.S. CPI Breadth Shows Increase In Price Pressures: RBC

The Fed's 'supercore' (core services excluding home rent component) jumped 0.6% month-over-month, bringing the most recent three month annualized growth rate to 4.8% from 2.2% in August. A jump in hospital prices explains part of the upside surprise in September, but that ended a string of sub-pre-pandemic readings for that measure that started in June. And by our count the share of the CPI basket excluding the shelter component seeing price growth above a 3% annualized rate over the last three months edged up to 46% from 38% in August. Still, that is down sharply from 64% a year ago.

Fed policymakers are wary of a reacceleration in price growth with the economy still running exceptionally hot. The September data follows a string of downside surprises that left a substantially softer-than-expected broader price growth backdrop over the summer - and the upside surprise in the latest month shouldn't be enough to change that broader narrative. But the Fed's pause in interest rate hikes is really a function of soft inflation prints allowing policymakers patience to wait for an exceptionally strong (and probably overheating) growth and labour market backdrop to cool. We don't expect additional interest rate hikes this year will be necessary, but the Fed is still willing to respond with higher interest rates were the inflation backdrop to show further signs of reacceleration. - RBC