US CPI data points towards more rate hikes

The US recently reported higher-than-expected inflation, as core consumer price inflation hit a 40-year high rising 6.6% in September over the last year. Pimco says that it now expects the US Federal Reserve to raise interest rates by 75 bps in both November and December.

“The September (consumer price inflation) report reaffirms our view that inflation will likely remain ‘sticky’ at an elevated level over our cyclical horizon, although easing energy and food commodity prices should continue to moderate headline inflation,” writes Pimco economist Allison Boxer.

The investment management firm says that US inflation rose in September primarily due to higher rent in large cities. Interest rate hikes have likely contributed to faster rental inflation, as steep borrowing rates make homes less affordable. Pimco sees shelter prices peaking above 8% on a year-on-year basis, compared to the pre-pandemic level of about 3.5%. Pimco talks about other sectors which are driving CPI higher and discusses the price of goods, medical services and used cars.

Talking about the impact on the US economy, Pimco says that a continued high consumer price inflation and a strong US jobs report will force the Fed’s hand at fighting inflation.