September core CPI was a touch on the soft side but still consistent with a December hike. With September PPI and CPI now in, it looks like 12-month core PCE inflation will remain at 1.3% in September. FOMC participants’ median projection in September of 1.5% core PCE inflation this year (Q4/Q4) implied that monthly readings would have to average 1.8% annualized over the remainder of the year—more optimistic than we were. At this point, the price data appear to have come in slightly soft relative to the FOMC consensus.
However, a December hike still appears likely. At the time of the September meeting, there was a strong consensus for a December hike, and this week’s minutes suggested that “many” participants who supported a hike would be unlikely to change their views. An apparently small contingent (“several others”) who expected a hike to be appropriate said their support ultimately would depend on the incoming data giving them more confidence that inflation was headed to 2%. Moreover, the employment report for September, including the strength in average hourly earnings and decline in the unemployment rate, will make the FOMC more comfortable with moving in December. So will some of the data on economic activity, including today’s retail sales report.