US inflation higher, strong rise in jobless claims. What about the dollar❓

U.S. overall inflation decline weaker than expected. Core inflation rebounds

CPI inflation for September fell less than expected to 2.4% y/y from 2.5% y/y. The expectation was 2.3% y/y. This is obviously closer to the inflation target, but a rebound in the final months of this year cannot be ruled out. A rebound in core inflation to 3.2% y/y is, however, a rather negative signal from the markets' perspective, as it could lead the Fed to consider the legitimacy of as many as 2 cuts this year. Nevertheless, today's report is also not significantly different from previous readings, and we shouldn't expect much change next month either (although of course oil prices rebound strongly). However, it is worth noting that today's CPI report is the last one before the US elections and the last one before the November Fed decision.

Taking the 3-month average for inflation, deseasonalizing and annualizing it, here he sees a sizable return of inflationary pressure. A similar jump in this indicator in 2015 or 2020 led to a stabilization of core inflation for an extended period. 

Also looking ahead to the next inflation readings this year, if inflation does not score a monthly reading of 0.0% m/m or a decline (and there is little chance of that given fuel prices), we will see a rebound in the coming months. 

Food prices may no longer fall

Looking at the FAO food price index, prices may score a consolidation and even a rebound at the turn of this year. On an annualized basis, FAO prices are already up 2.1%, although we had double-digit declines as recently as the beginning of this year. 

Gasoline prices may rebound

Gasoline prices were one of the more important factors that lead to weaker inflation in September. This may not be so easy anymore in October, given the increases in oil prices. Fuel prices subtracted as much as 0.5 percentage points from annual inflation. On a monthly basis, it was a deduction of almost 0.2 percentage points. 

Oil is beginning to rebound, so a rebound in fuel prices cannot be ruled out. Of course, these remain under pressure due to reduced demand - due to the recent hurricanes in the US, among other factors. Nevertheless, keeping prices close to $3 per gallon with prices above $75 per barrel may be difficult. 

Rental inflation slows, but remains very high

After the recent recovery, we are seeing a return to declines in rental inflation (shelter). However, based on a leading indicator in the form of house prices according to the Case-Shiller report, the downward potential may be on the wane. This may suggest stickiness in core inflation in the near term. 

Services inflation remains a concern

Considering the contribution chart presented earlier, it can be seen that service-related costs continue to have the strongest impact. Moreover, the price sub-index from the ISM report for services suggests that this inflation may remain high. 

Services inflation remains high.

High jobless claims. Is there anything to worry about, though?

Jobless claims rose to 258,000, the highest level since August 2023. More importantly, the increase itself, compared to the previous reading, is also the largest increase since July 2021. The largest weekly increase took place in the case of Michigan, so in this case it is difficult to talk about the impact of the weather. On the other hand, sizable increases took place in states such as North Carolina, Tennessee, Virginia and Kentucky, where the impact of weather was quite apparent. It is worth noting, however, that this refers to Hurricane Helene, and not the current one (Milton), which hit Florida quite hard. The increase in applications in Michigan was related to the downsizing of Stellantis. 

The key question is whether these increases will also be seen in the following weeks. The number of states with rising applications is starting to send a recessionary signal again. The next 2 reports are likely to be affected by the weather. In addition, it is worth noting that the increase in applications in states such as Michian and North Carolina may also reflect in the presidential vote in less than a month. The question is whether this is a one-two punch or a steady trend indicating, however, the need for stronger interest rate cuts. 

If the share of states where applications increase significantly on an annualized basis exceeds 20%, this has often given a recessionary signal in the past. Nevertheless, earlier this year it was a false signal. 

EURUSD reacts sharply to claims

EURUSD initially lost sharply, which was linked to higher-than-expected inflation. However, the market is more strongly concerned about weak labor market data. Expectations for a 25 basis point cut in November jumped from yesterday's 82% to 90% after the data. In all likelihood, however, the current data do not yet signal enough to lead to a change in tone on the part of the Fed. However, if applications next week rose again and fell closer to 300,000, then we can expect a decidedly larger price reaction on the dollar.