Economists and market strategists are approaching the latest Consumer Price Index (CPI) report with caution, despite the data revealing a positive surprise. The report indicated a notable downside surprise compared to consensus expectations, prompting some analysts to temper their initial enthusiasm. Concerns have been raised regarding the data collection process, which was reportedly affected by unusual circumstances.
According to Jonas Goltermann from Capital Economics, the 0.4 percentage point downside surprise is the largest in at least two decades. However, he cautioned that the data should be interpreted carefully due to the shutdown-affected collection process. These concerns suggest that the accuracy and reliability of the data might be compromised.
Despite the reservations, the inflation data, coupled with the gradual increase in the US unemployment rate, may bolster the argument for more dovish monetary policies. Some members of the Federal Open Market Committee (FOMC) are expected to advocate for continued rate cuts into next year. However, Capital Economics maintains its view that robust US growth, supported by strong consumer spending and ongoing investment in artificial intelligence, will limit the FOMC to only one further 25 basis point rate cut in 2026.
Overall, while the CPI report presents some positive signs, economists are urging a measured response, emphasising the need to consider the potential impact of the unusual data collection methods.
