Economic Update: Inflation Reports and Upcoming Data

Last week’s inflation figures really stood out. The Consumer Price Index (CPI) for September showed a monthly increase of 0.6%, pushing the annual inflation rate up from 3.4% in August to 3.7%. Meanwhile, the core CPI, excluding food and energy prices, climbed 0.3%, raising its year-over-year rate from 2.4% to 2.6%. These results were, I think, a bit higher than many analysts had anticipated. On the producer side, the Producer Price Index (PPI) for final demand surged 1.3% month-over-month, resulting in a yearly rate of 6.3%, which is the highest figure we’ve seen since 2022. Retail sales were also up, increasing by 0.8% month-over-month, although, when you take out gas station sales, that increases drops to just 0.2%.

Interestingly, the likelihood of a 25-basis point rate hike at the Federal Open Market Committee (FOMC) meeting scheduled for October 27-28 decreased from 22% to 17%, even with the high inflation data. Fed Chair Kevin Warsh didn’t give any hints about the meeting during his speeches at the International Monetary Fund and World Bank meetings in Bangkok. He noted, “I don’t prejudge meetings.” In fact, the odds for a rate hike in December appear to be climbing. It’s worth mentioning that we still anticipate the Fed will reverse the last two out of three 25-bps “insurance” cuts made last year. Right now, Fed officials are preparing for their blackout period before the next meeting.

This week is shaping up to be quieter in terms of data, with earnings reports taking the spotlight. The flash PMIs are the main focus in the U.S. coming this Friday. Additionally, we are tentatively expecting the Fed’s Financial Stability Report and Canada’s federal budget on Tuesday. Here’s a brief rundown of what to look for:

• ADP & Unemployment Claims: The ADP’s weekly employment numbers, due on Tuesday, will follow last week’s uptick in the four-week average to 24,750 for the week ending September 26 – the highest since early June, up notably from a July low of 8,250.
• Jobless Claims: Initial jobless claims on Thursday will follow last week’s 199,000 figure, with the four-week average currently at 198,500. Continuing claims dropped to 1,710,000 for the week ending October 2, aligning with the four-week average. This suggests that the labor market is still on an upward path.
• Flash PMIs: The S&P Global flash manufacturing PMI and services PMI, both due on Friday, will provide insight after September’s ratings were 55.9 and 58.8, respectively. The prices component in services is particularly noteworthy following a spike in ISM’s services prices-paid index, now the highest it’s been since July 2022.
• Earnings Season: Earnings reports ramp up this week with companies like Netflix, GE Aerospace, and Northrop Grumman set to release their results on Tuesday. Tesla and Meta are in the spotlight on Wednesday, alongside some other industry giants. Unexpectedly strong results from ASML and TSMC last week have analysts buzzing, as ASML’s net sales surged to €11.7 billion while TSMC experienced a revenue jump of over 50% year-on-year.
• Global Data: China’s Q3 GDP results are expected on Monday, aiming to show a modest increase following a 4.3% growth in Q2. The unemployment rate for September, which came in at 5.2% in August, will also be released. In the UK, the CPI data due on Wednesday for September might show further increases due to rising energy prices. This comes after August’s headline was 3.1% year-on-year.
• Canada’s CPI: Scheduled for Monday, this will reflect changes in prices, following August’s year-on-year rate of 3.0% in headline CPI and 2.3% in the core.

As always, it’ll be interesting to see how all these numbers play out in the broader economic picture.