US September CPI Rises 3.7%, Surpassing Forecasts in 'Inflation Shock' as Treasury Yields Surpass 5.3%

A 'inflation shock' has occurred in the financial markets as the US Consumer Price Index (CPI) was announced at a level that even exceeded the negative forecasts of the market. The September CPI announced by the United States Department of Labor rose 3.7% compared to the same month last year, surpassing the expert forecast of 3.6% compiled by Dow Jones. Core CPI also rose 2.6% compared to the previous year, exceeding the market expectation of 2.5%.

Inflation rebound exceeding negative forecasts, rise driven by energy and housing costs

According to the analysis provided by the economic analysis channel 'The Man Who Explains the Economy (Kim Kwang-seok TV)', this inflation indicator is a result that breaks the downward stabilization trend the market had expected. The market had already released negative forecasts, expecting the inflation rate to slow down, but the actual figure recorded a higher rate of increase. This is interpreted as a 'shock,' similar to a situation where performance comes out worse than the negative expectations held.

The main causes of the inflation rise are cited as the movements in energy prices and housing costs. As international oil prices exceeded 100 dollars per barrel due to the reignition of war in the Middle East, energy prices rose strongly. In particular, the fact that the housing cost growth rate within core services rebounded from 3.0% to 3.2% was pointed out as a factor of instability. Housing costs show a characteristic of continuously rising in inflation indicators, and this rebound increased the contribution to the overall inflation rise.

Producer Price Index (PPI) as a leading indicator and robust employment situation

This rise in CPI is in line with the trend of the Producer Price Index (PPI) which rebounded last August. The Producer Price Index acts as a leading variable for the Consumer Price Index, and since the PPI and core PPI had already rebounded in August, the possibility that the September Consumer Price Index would also rise had been raised. If the PPI indicators to be released in the future also surge, the inflation trend may face an even more severe situation.

The robust employment situation of the US economy is also supporting inflationary pressure. The unemployment rate is maintaining a stable trend, staying below the 4.5% baseline, and the change in non-farm payrolls is also showing a stable level. These solid economic and employment indicators are in a phase that could serve as a basis for judging that interest rates must be further increased to stabilize inflation.

Treasury yields surpass 5.3% and the possibility of interest rate hikes expands

Immediately after the announcement of the inflation indicators, the financial markets reacted instantly. The US 10-year Treasury yield surged, recording 5.32%, and the dollar index also showed a strong upward trend. As the high interest rate stance is reproduced, it is analyzed that downward pressure will act on the Bitcoin and gold markets.

The market's view on interest rate policy also changed abruptly. According to FedWatch data, until just before the CPI announcement, the possibility of a rate freeze in October reached 70–80%, but after the inflation shock, the probability of a freeze fell to 65%. On the other hand, the possibility of an interest rate hike rebounded to 35%, and the market began to seriously consider the possibility of an interest rate hike in October. Such changes in US monetary policy are expected to have a negative impact on global financial markets, including the Korean stock market, in the future.

Source: original video (YouTube)