Cooling US inflation makes the case for Fed rate cuts

Softer US inflation boosts case for Fed rate cuts: The US’ core consumer price index (CPI)(pdf) rose just 0.2% m-o-m and 3.0% y-o-y in September, its slowest pace in three months and 0.1 percentage points below Wall Street’s estimates on both measures, Bloomberg reported on Friday. The report is “tepid enough to seal the deal for a 25-bp rate cut later this month, and another one in December,” economists Anna Wong and Chris G. Collins noted.

Headline inflation showed a similar picture, increasing 0.3% m-o-m and 3% y-o-y, also coming in just shy of expectations by 0.1 percentage points.

The moderation in prices was primarily driven by softer services and shelter costs. Housing costs saw their smallest increase since early 2021, with owners’ equivalent rent — a component that accounts for roughly a quarter of the CPI — rising just 0.1%. Goods inflation also eased amid a decline in used car prices. Still, services prices (excluding housing and energy) — a measure the Fed watches closely — remained firm, signaling sticky underlying pressures.

Uneven impact: The Fed’s Beige Book noted rising input costs across industries, though the effect is varied. Companies like Procter & Gamble reported minimal impact, while others — including O’Reilly Automotive — responded by raising prices. Tariff-exposed categories such as apparel and furnishings saw sharper gains, with apparel prices climbing at their fastest pace in a year.

Growing tariff concerns: While the impact of tariffs has been milder than expected, economists warn of renewed price pressures as President Trump’s latest duties on household goods take effect. Firms have so far absorbed most cost increases but are likely to pass them on to consumers soon as margins tighten, Pantheon Macroeconomics’ Oliver Allen told Bloomberg. “We anticipate a cumulative shock from tariffs totaling 0.8 percentage points by early 2026,” EY-Parthenon’s chief economist Gregory Daco told Reuters.

AND- US government shutdown delayed the report and threatens future data. While economists are confident in the September data, which was collected before the shutdown, the Bureau of Labor Statistics has not collected new data since, and a White House-affiliated account stated there will “likely NOT be an inflation release next month for the first time in history.”

ALSO FROM PLANET FINANCE-

• Gold prices shed USD 138.8 per ounce last week, closing on Friday at USD 4.1k, Bloomberg reported on Saturday. The biggest weekly dip since 2013 — and one of the largest ever in USD terms — followed a period of record highs driven by frantic retail buying. The outlook is still bullish, as analysts and investors see the decline as a “healthy correction” and a “buy the dip” window for central banks and physical buyers.

MARKETS THIS MORNING-

Japan’s Nikkei is leading Asian markets’ gains this morning, up 2.1% in early trading after breaking the 50k level for the first time, ahead of Trump’s meeting with Prime Minister Takaichi this week. Meanwhile, Wall Street futures are in the green ahead of an anticipated Fed rate cut and a week of Big Tech earnings.

THE CLOSING BELL-

The ADX rose 0.1% on Friday on turnover of AED 1.2 bn. The index is up 8.3% YTD.

In the green: Rapco Investment (+12.7%), Abu Dhabi Ports Company (+5.6%) and E7 Group (+3.8%).

In the red: Oman & Emirates Investment Holding Co (-10.0%), Abu Dhabi National Takaful Co (-10.0%) and Phoenix Group (-2.2%).

Over on the DFM, the index rose 0.8% on turnover of AED 551.6 mn. Meanwhile, Nasdaq Dubai was up 0.7%.

CORPORATE ACTIONS-

Sharjah Islamic Bank has sold 167.7 mn treasury shares — equivalent to 5.18% of its total share capital — for a total consideration of AED 469.6 mn, according to a disclosure (pdf).