US inflation comes in above expectations following hot jobs report

US inflation came in slightly above expectations in September, bolstering the case for a slower pace of rate cuts over the coming months.

Figures from the Bureau of Labor Statistics showed that the headline rate of inflation fell to 2.4 per cent in September, down from 2.5 per cent last month but slightly ahead of the 2.3 per cent expected by economists.

Higher higher housing costs and food inflation made up 75 per cent of the 0.2 per cent month-on-month price increase, the figures showed.

Core inflation, which excludes volatile components like food and energy, rose to 3.3 per cent when economists had expected it to stay at 3.2 per cent.

The figures will likely embolden calls that the US Federal Reserve needs to be a bit more cautious with its policy going forward.

The Fed kicked off its rate cutting cycle with a 50 basis point reduction last month amid growing fears that the labour market was on the cusp of a severe deterioration.

Chair Jerome Powell stressed that the decision was motivated by a desire to ensure that high interest rates did not do unnecessary damage to the economy, suggesting that the Fed viewed risks to its full employment mandate were more pronounced than an inflationary uptick.

Data since then has painted a healthier picture for the world’s largest economy, with the latest labour market figures showing that jobs growth comfortably surpassed expectations in September.

Unemployment also posted a surprise decline, suggesting fears about a possible downturn may have been a little overdone.

Although the inflation figures came in marginally above expectations, most economists did not expect this to derail a November cut. Indeed, the odds of a November rate cut actually increased slightly following the figures.

“For setting policy, the FOMC will remain more focused on growth data and the labour market,” Patrick O’Donnell, senior investment strategist at Omnis Investments said.

Michael Brown, senior research strategist at Pepperstone, expected two further 25 basis point cuts this year.

“Despite the figures being hotter than expected, it seems highly unlikely that the September CPI figures will materially alter the FOMC policy outlook,” he said.