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Inflation Heats up in September, USDJPY Hangs onto Gains After Release

Christopher Vecchio

UPDATE: USD Consumer Price Index (SEP) > +2.0% y/y versus +1.9% y/y expected, from +1.7% y/y > USD Consumer Price Index Ex Food & Energy (SEP) > +2.0% y/y as expected, from +1.9% y/y > USDJPY NEUTRAL

American consumers are getting squeezed. As wages remain stagnant and price pressures increase, purchasing power is eroded, which means that more debt needs to be taken on to finance purchases. This is the conclusion that we’re drawing after the release of September’s Consumer Price Index report, which showed a modest bump in inflationary pressures. But what’s important is that both yearly figures – the headline and the core – held at the Federal Reserve’s medium-term target of 2%, meaning that more quantitative easing can’t be ruled out.

Prices increased by +0.6% on a monthly-basis in September, the same pace as in August, and slightly above the +0.5% m/m forecast provided by Bloomberg News. The core figure, which excludes the food and energy subcomponents, moved up a slight +0.1% m/m, the same pace from August. Both the headline and core (ex food & energy) figures came in at +2.0% y/y, as previously mentioned.

USDJPY 1-minute Chart: October 16, 2012

Inflation_Heats_up_in_September_USDJPY_Hangs_onto_Gains_After_Release_body_Picture_1.png, Inflation Heats up in September, USDJPY Hangs onto Gains After Release

Charts Created using Marketscope – Prepared by Christopher Vecchio

Following the release, the USDJPY initially spiked higher on the news as it appeared that the higher rates of inflation would give to higher US Treasury yields; the Fed has stated that high running inflation would necessitate a withdrawal of QE3. Nevertheless, the USDJPY spiked to fresh highs at 78.92 before falling back to 78.86. It was trading at 78.91 at the time this report was written.

--- Written by Christopher Vecchio, Currency Analyst

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