Consumer prices rose for the fourth month in a row in September after blockages led to a sharp drop in prices earlier this year. However, some of the major price categories continued to show the effects of the pandemic. Food or grocery prices, for example, are falling for the third straight month after rising prices as consumers increasingly rely on food at home during the quarantine.
Likewise, restaurant prices have risen the most in just one month in 12 years (up 0.6%) as reopening has driven demand and perhaps some restaurant owners have raised prices to compensate for their virality. -acceptable (capacity limitation, disinfection processes/equipment, etc.). Besides, prices for basic services in the economy as a whole remain under pressure. Housing costs have risen only marginally in recent months, holding back the provision of basic services.
Further declines in airfare and vehicle insurance prices also continued to weigh on service prices, two price categories that have been hit hard by changing consumer behavior in recent months. In terms of commodity prices, September marked the first rise in producer prices since the virus-related downturn in March.
Overall, we expect inflation to rise for the remainder of the year, but remain below pre-pandemic levels, as demand remains generally weak, especially in the services sector. Subdued inflationary pressures will allow the Fed to maintain its adjustment measures for some time and, perhaps more importantly, allow it to focus on the labor side of its dual mandate.
Risk appetite eased slightly ahead of the week’s close as data from the US beat expectations, with Michigan’s retail sales and consumer sentiment improving more-than-expected. Nevertheless, the dollar ended the week with gains against most of its major competitors.
The euro’s weakness was linked to an increase in the number of coronavirus cases in the EU, leading to restrictive measures in the EU. European Central Bank board member Fabio Panetta warned over the weekend that ultra-weak monetary policy is more than necessary amid the risk of a second wave of COVID-19 that will undermine the economic recovery. EUR/USD closed at 1.1715 ahead of ECB President Lagarde’s speech on Monday.
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