US Watch-september inflation

Accessibleversion BofAGLOBALRESEARCHBofASECURITIES USWatch SeptemberCPlinflation:surginggservices meannorespitefortheFFec Coreservicesremainredhot13October2022 HeadlineCPIpricesrose0.4%inSeptember,comparedtoour0.2%forecast.EnergyMacro pricesfell2.1%m/mandfoodpricesrose0.8%.BothnumberswereslightlystrongerUnitedStates thanwewereexpecting(BofA:3.5%and0.7%,respectively).Y/yheadlineCPIinflation droppedto8.2%from8.3%,USEconomics BofAS Thekeyupsidesurprisewasincoreinflation.CoreCPIrose0.6%momvs.our MichaelGapen expectationofa0.4%increase.They/yratesurgedto6.6%,whichmarksa40-yearhighBofAS +16468553270 Thestrengthincoreinflationwasdrivenbycoreservices,whichroseby0.8%m/mafter a0.6%m/mincreaseinAugust.Shelterinflationroseto0.8%m/m(0.75%)from0.7% m/mpreviously.BothrentandOERmovedupfrom0.7%m/mto0.8%m/m,butlodgingawayfromhomefellby1.0%m/m.Elsewheretransportationserviceswereabig michae.gapen@bofa.com AdityaBhave USandGlobalEconemist contributor.AirlinefaresrosebyO.8%m/m,afterthreeconsecutivemonthlydeclines,andmotorvehicleinsuranceincreasedby1.6%m/m,upfrom1.3%m/minthepriortwo elityabhae(@bofscmmStephenJuness months.Carandtruckrentalswerealsoup2.5%m/m.Medicalcareservicesroseby 1.0%m/m,thoughwemaysoonseesomesofterreadingsthere.+16460557254 stephenjuneauPbofacom Meanwhile,coregoodsinflationwassofterthanexpectedat0.0%m/m.OnaverageoverShrutiMishra 5andGlobdEconomist thepreviousthreemonths,coregoodsinflationhasposteda0.2%m/mincrease, BorAS comparedtothe0.6%m/maveragein2Q.Usedcarpricesfellmorethanwehad+16468551040 smishra44(Fbof2.com projected(-1.0%vs.-0.1%expected),Newvehicles,ontheotherhand,werestronger thanweexpected(0.7%m/mvs.0.5%m/m),Usedcarpricescouldcontinuetoslide JeseoPark giventhetrajectoryofwholesalepricesApparelpricesalsofellforthesecondconsecutivemonth,downO.3%m/m.Appliancesfellforafourthconsecutivemonth(- aausruouonajaaosaupap.nyadxapnomam'(/%/ categoriesasbusinessesworkoffexcessinventories. +16468558688 jeseo.park@bofs.com USRatesResearchBofAS Thesubstantialslowdownincoregoodsinflationisconsistentwiththenotionthatsupplychainpressuresareeasing,Wecontinuetoexpectaperiodgoodsdisinflation, MeghanSwiber,CFA $Strstegist BofAS +16468559877 followedbydeflation.However,coreservicesinflationhasnowinchedaheadolcoremeghan.wber&bofacem goodsinflationonay/ybasis(6.7%vs.6.6%).Shelterinflationisalaggingindicator,andSeeTeamPageforListofAnalystS altemativerentdatasuggestthereismoderationinthepipeline.Nonetheless,wethink sticky-highservicesinflationisareflectionoftheresilienceofthelabormarket,since servicesarelabor-intensiveandproduceddomestically. Glossary CPI=ConsumerPriceIndex SofromtheFed’sperspective,theinflationmixintheSeptemberCPIreportstrengthens thecasetostayhawkish.Inourview,theFedneedstoslowthelabormarketdownPPIProducerPriceIndex despitetheunprecedentedpaceofmonetarytightening,Thisalsomeansthereisno PCE=PersonalConsumption conflictatthemomentbetweentheFed'stwomandates:botharesendingaclearsignalExpenditures(PriceIndex) toraiseratessignificantlyfurther.OER-Owners'EquivalentRent OIS-OvemightIndexedSwap Tradingideasandinvestmentstrategiesdiscussedhereinmaygiverisetosigrificantriskandare notsuitableforallinvestors.Investorsshouldhaveexperienceinrelevantmarketsandthefinancia resourcestoabsorbanylossesarisingfromapplyingtheseideasorstrategies.BofASecuritiesdoesandseekstodobusinesswithissuerscoveredinitsresearch reports.Asaresult,imvestorsshouldbeawarethatthefirmmayhaveaconflictof interestthatcouldaffecttheobjectivityofthisreportlnvestorsshouldconsiderthis reportasonlyasinglefactorinmakingtheirimvestmentdecision. Refertoimportantdistlosuresonpage5to7. BsTAGLOBAL,RESEARCH Ratesstrategyview Treasurycurveflatteningisconsistentwithharderladingrisk,withFOMCOISnow pricing77bpsofhikesinSeptemberand65bpsinDecember.Breakevensandrealrates arehigheracrossthecurve,butselloffledbyrealrates.TerminalpricingforMarch*23 at4.9%isnowconsistentwithourEconteam'scallforterminalbetween475-5.With in2023.Thestrengthofservicescomponents,whichtendtobethemorecyclicalcomponentsofthebasket,givestheFeddrivetogettoahigherpolicyratequickera prominentsentimentintheSeptemberFOMCminutes. Exhibit1:CPIforecastpreview Coreservicessurprisedtotheupside,whilecoregoodsweresoft %chg.mm,unlesindicated Forecast September Actual Difference NSACPIIndex(level) 296.4 896Z -0.4 Alitems 0.2 0.4 -0.2 Foed 91 Allitemslessfoodandenergy 0.4 0.6 -0.2 Asuauasaseoyuas -0.3 Shelter 85 0.0 Rernrofprimaryresidence 0.7 -0.1 0.7 Lodgingawayfromheme 0.3 -1.0 1.3 Wisterandsewer 0.3 0.7 -0.4 Medicalcareservices 0.7 1.0 -0.3 Transpartotionservices α1 1.0 -0.9 ofwhich: Aifares -0.5 1.9 -24 Carrentals 2.5 80 1.7 Recrcatinnservices 0.2 -0.1 Ed.ctianandcarmunicctin 0.2 0.2 0.0 ofwhicth: Tuticn 0.3 0.4 -0.1 Otherpersonalsenvices 0.4 03 0.1 Coregoods 0.2 0.0 0.2 ofwhich 0.0 Apparel 0.2 -0.3 50 Transportion -0.2 0.4 Newvehides 0.7 -0.2 Usedcarsandtrucks -0.1-1.1 1.0 Alcoholicbeverages0.4000.4 Source:UluresuofLstorStstistics,UofAGiobelResearth BotAGLOBAL,RESEARCH 2USWatchI130ctober2022 CfAGLOBALRESEA