The Day at a Glance | September 29 2023

*The FED’s preferred indicator for tracking inflation – the Consumer Expenditure Deflator – printed figures that set in line with consensus estimates in August, confirming a moderation in the core component to a minimum of over two years.

*Additionally, personal spending logged moderation in August: 0.4% m/m vs 0.8% m/m in July. 

*Inflation in the Eurozone became more moderate and set at 4.3% y/y; the core component recorded its smallest increase in a year.

*The US United Automobile Workers Union is preparing to announce it will possibly extend its strike.

*A government shutdown in the US seems imminent due there being no agreement in Congress.

*Russia announced a 70% increase in its military spending for 2024.

Economic environment

The Consumer Expenditure Deflator in the US recorded an annual 3.5% reading in August, in line with market forecasts. On a monthly basis, a 0.4% figure was logged – a slightly slower than expected acceleration (0.5% m/m e.) compared to the two previous figures (0.2% m/m prev.). Nevertheless, this higher reading suggests a potential return of inflationary pressures that had eased throughout the year, driven by higher energy prices indicated by the sub-index, which increased 6.1% m/m. Similarly, food prices increased by 0.8% m/m. However, the core component only increased 0.1% m/m, its lowest reading since November 2020, and set below the 0.2% m/m market forecast. With this, the annual reading for the core component fell to 3.9%, its lowest level since May 2021. While the annual reading for general inflation accelerated for the second consecutive month, the fact that the reading set in line with market estimates and was accompanied by further moderation in core inflation and a slowdown in personal spending at 0.4% m/m, strengthened the idea that the FED may have already reached its terminal rate; this now points to the first federal funds rate cut occurring in June 2024.

The timely inflationary estimate in the Eurozone points to a 4.3% y/y figure in September. Prices in the Eurozone pleasantly surprised by coming in below the consensus estimate of 4.5% y/y, down from the previous month’s 5.2%. In the Eurozone, the energy sector continued to have a downward effect as it logged a faster pace compared to the previous month (-4.7% y/y vs. -3.3% y/y in August), while services recorded an annual 4.7% compared to the 5.5% y/y recorded in August. Additionally, although the category of food, alcohol, and tobacco decreased by 9 percentage points in its annual reading, the 8.8% y/y rate remains quite high. As a result, core inflation decreased to 4.5% y/y (compared to the previous 5.3%) after remaining above 5% for the past few months. Overall, September´s inflation readings showed greater moderation, especially in the core component, which logged its smallest increase in a year and backed expectations that the ECB will keep its interest rates unchanged in its next monetary policy meeting.