Gold prices holding near two-week high following hotter-than-expected CPI; inflation rises 0.4% in September
NEW YORK (October 12) The gold market continues to hold solid gains after hitting a two-week high overnight; however, according to some analysts, the precious metal could face some near-term challenges as inflation remains stubbornly elevated.
Thursday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.4% last month, following a 0.6% rise in August. The data came in hotter than expected, as economists were forecasting a 0.3% increase.
The report said inflation in the last 12 months rose 3.7%, unchanged from August's reading. Annual inflation is also slightly hotter than expected, as consensus forecasts looked for a 3.6% increase.
The gold market is not seeing any major reaction to the latest inflation data; however, the report appears to have slowed its bullish momentum. December gold futures last traded at $1,893.30 an ounce, up 0.32% on the day.
Although headline inflation came in hotter than expected, core consumer prices, which strips out volatile food and energy, rose in line with expectations. The report said that core inflation rose 0.3% in September, following August's increase of 0.3%.
In the last 12 months, core inflation rose 4.1%, the report said; this was also in line with consensus forecasts.
Although the gold appears to be taking the latest inflation data in stride, there are growing risks that persistently elevated inflation could force the Federal Reserve to raise interest rates when it meets next month. So far, market expectations for a rate hike are extremely low, at around 5.5%.
The latest inflation numbers come a day after the Federal Reserve acknowledged growing downside risks for the economy in the minutes of the September monetary policy meeting. However, the central bank said it remains focused on bringing inflation down to its 2% target.
"All participants agreed that policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective," the minutes said. "Several participants commented that, with the policy rate likely at or near its peak, the focus of monetary policy decisions and communications should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels."
“The index for shelter was the largest contributor to the monthly all items increase, accounting for over half of the increase,” the report said.
Higher gasoline prices also contributed to the hotter inflation print. The Gasoline Index rose 2.1% last month. The full Energy Index rose 1.5% last month, the report said.
The report also noted that food prices appear to be relatively stable with the Food Index rising 0.2% in September, the same increase seen in August and July.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, said that there is nothing in the latest inflation data that will force the Federal Reserve to raise interest rates next month.
“We continue to expect a more rapid decline in inflation and weaker economic growth to result in rates being cut much more aggressively next year than markets are pricing in,” he said.
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