U.S. consumer prices rise 3.7% higher than expected

The September U.S. Consumer Price Index (CPI) rose 3.7% year-over-year, slightly surpassing market expectations. Concerns have resurfaced in the global financial market, with fears of an extended period of high interest rates, as inflation rates exceed the U.S. Federal Reserve's (Fed) 2% target, reaching 3%. The Korean stock market, which had shown signs of recovery for two consecutive days since Wednesday, also turned downward on Friday.

On Thursday, the U.S. Department of Labor reported that September's Consumer Price Index (CPI) increased by 3.7% year-over-year and by 0.4% month-over-month. This marked a slowdown from August (3.7%, 0.6%) but exceeded market expectations (3.6%, 0.3%). When excluding volatile food and energy prices, core CPI increased by 4.1%, aligning with market expectations and showing a slower pace than 4.3% in August. On a month-over-month basis, core CPI rose by 0.3%, mirroring the August figure.

Wall Street's assessment of the latest CPI data is mixed. While the decrease in the core CPI inflation rate is viewed positively, the prospect of 'inflation remaining at 3%' suggests an extended period of high interest rates from the Fed. Unemployment claims remained at 209,000 for the week in the U.S., marking the fourth consecutive week below 210,000. This data indicates that the U.S. labor market continues to be a factor contributing to inflation.

The New York stock market saw an immediate rise following the CPI release, but Treasury yields began to surge as analysts speculated that inflation could become entrenched in the 3% range unless the economy is forced to slow down. The 10-year Treasury yield increased to 4.70%, up 0.13 percentage points from the previous day. As a result, the three major New York stock indexes fell for the first time in five trading days, with the Nasdaq Composite dropping by 0.63%.

On Friday, the KOSPI closed at 2,456.15, down 23.67 points or 0.95% from the previous day. Individual investors defended the index against the drop with net purchases of 422.5 billion won, but it was insufficient to withstand the sell-off led by foreigners and institutional investors. Foreign investors have been on a selling spree for 15 consecutive trading days since September 18. The KOSDAQ also lost 12.55 points, or 1.50%, to close at 822.94. The won-dollar exchange rate ended the day at 1,350.0 won, up 11.5 won from the previous day due to a strong dollar trend.

Markets still expect the Fed to keep interest rates unchanged in November. Nevertheless, there is a sense of caution that another hike could occur at the final Federal Open Market Committee (FOMC) meeting of the year in December. According to futures on the Chicago Mercantile Exchange's FedWatch, investors are currently pricing in a 33% chance of a rate increase by December.


Hyoun-Soo Kim kimhs@donga.com