Consumer prices rose by 0.2% M/M in September, with the annual pace of price deflation rose to -1.3% Y/Y.

    - Core consumer prices were also up by 0.2% M/M, while the annual pace of core inflation rose to 1.5% Y/Y.

    - Overall, a slightly stronger than expected upward push in consumer prices in September, though inflation remains subdued.

    U.S. consumer prices rose by their largest margin since July this year with a 0.2% M/M (up 0.169 at 3 decimal places) gain in September. This was in line with the market consensus. On an annual basis, the pace of price deflation eased to -1.3% Y/Y from the -1.5% Y/Y print in August. Core consumer prices were also up by 0.2% M/M (up 0.164% M/M at 3 decimal places), and was the fastest place
    of price increase since June. This was slightly stronger than the market consensus for a more modest 0.1% M/M gain. The annual pace of price inflation rose to 1.5% Y/Y from 1.4% Y/Y in August, and was the first monthly gain in this indicator since May, though we expect this is revert to its
    downward trend shortly.

    The details of the report were mixed. During the month, the biggest upward push on the headline number came from gasoline prices, which rose 1.0% M/M following the 9.1% M/M gain in August, while the price for motor vehicle (up 0.5% M/M) and medical care (up 0.4% M/M) also rose sharply. Owners equivalent rent, however, declined by 0.1% M/M, though overall housing costs remained unchanged on the month. Food prices and recreation costs were also lower, both falling by 0.1% M/M. Overall, despite the modestly stronger that expected print for both headline and core inflation, the basic message of this report is simply that the substantial economic and labour market slack are continuing to place considerable downwards pressure on consumer prices. However, with the economy beginning to dig itself from the economic recession, these downward pressures should begin to ease. Notwithstanding this, and other healthy economic reports out this morning, we expect inflation to remain fairly subdued in the coming months, thereby affording the Fed considerable
    breathing room to keep the fed funds rate exceptionally low for an extended period of time.