CICC released a research report stating that the rise in oil prices led to the second consecutive month of rebound in US CPI inflation in August. The August CPI data once again indicates that although slowing inflation in the United States is the main direction, the process has not been smooth sailing. One reason is that the rise in oil prices has brought inflationary pressure from the cost side, with prices of energy commodities and air tickets noticeably rebounding. Secondly, the labor market is tight, and the inflation of services that exclude rent is still strong. Recently, strikes and salary increases in the United States have frequently occurred, which may pose new obstacles to fighting inflation. For the market, August inflation data will not create anxiety, let alone excitement. There is a high probability that the Federal Reserve will "stay put" next week, but there is still a possibility of interest rate hikes in the fourth quarter.

The main viewpoints of CICC are as follows:

The US CPI in August was 3.7% year-on-year (3.2% last month), while the core CPI was 4.3% year-on-year (4.7% last month), with the most prominent change coming from the rebound in energy prices.

In August, both fuel (+9.1% [1]) and gasoline (+10.6%) significantly increased, driving a significant increase in energy commodity prices after quarter on quarter adjustments. Natural gas services (+0.1%) and electricity prices (+0.2%) also continued to rise compared to the previous month. Due to continuous production cuts by major OPEC+member countries [2], global oil prices have experienced a continuous rise since August, with Brent oil prices exceeding $92 per barrel as of September 12th. Looking ahead, the bank believes that with the rebound in oil prices and the weakening of the high base effect in the first half of last year, the year-on-year growth rate of US energy prices may further increase in the fourth quarter.

The rise in oil prices not only affects energy prices, but also drives up other prices, such as the stabilization and recovery of air ticket prices.

The US CPI air ticket price index fell by 8.1% quarter on quarter in June, followed by another 8.1% quarter on quarter decline in July, which continued to drag down CPI. The August air ticket price index announced today rebounded by 4.9% quarter on quarter, an improvement from the previous two months. The bank believes that the rebound in airline tickets may indicate that airlines are shifting energy costs to consumers, which is a manifestation of the pass-through effect of rising oil prices. Looking ahead, the bank needs to pay attention to the impact of rising oil prices on other prices, including other transportation and transportation service prices, food prices, and even commodity prices that include transportation costs.

Another factor supporting inflation in August is rent.

The quarterly adjustment of hotel prices in August decreased by 3.6%, but the two items with a relatively large weight in rent - equivalent rent for homeowners and rent for main residences - maintained a month on month growth rate of 0.4% to 0.5%, roughly unchanged from the previous month. In theory, CPI rent inflation should significantly slow down in the second quarter of this year due to statistical lag, but so far the bank has not seen any signs of this. The decline in rent due to "delayed arrival" has strengthened the stickiness of core CPI, although this is more reflected in statistical factors. The bank is not concerned about rent inflation, and it expects the month on month growth rate of rent to further decline before rebounding next year (due to the rise in housing prices this year).

Excluding air tickets and rent, the inflation of services remains strong,

Items such as dentists (+1.6%), motor vehicle repairs (+1.1%), express delivery services (+2.5%), and personal care delivery (+0.4%) are still rising in price. Although there have been signs of a marginal slowdown in the labor market recently, with the number of new non farm employment falling in August and the unemployment rate rising, overall the labor market remains tight and wage growth remains firm. In addition, the recent frequent strikes and salary increases may bring new obstacles to the downward trend of inflation. Since July, there have been strikes by Hollywood screenwriters, salary increases for truck drivers and airline pilots, and ongoing strikes by car union workers, all of which may lead to wage increases and hinder a slowdown in inflation. The frequent occurrence of strikes also indicates from another perspective that the bargaining power of current workers has improved, and the job market has stronger resilience than the general cycle.

The bank expects the Federal Reserve to "hold still" next week, but there is still a possibility of interest rate hikes in the fourth quarter.

The bank believes that the Federal Reserve is prepared for the overall rebound in CPI inflation caused by the rebound in oil prices, and may be slightly disappointed if the slowdown in core CPI inflation is less than expected. For the market, the August inflation data will not be exciting, after all, the "bets" on the rapid decline in US inflation and the Federal Reserve's interest rate cuts over the past year have repeatedly failed, giving investors a little more respect for inflation and the Federal Reserve. On the other hand, this inflation data will not create anxiety, and the rebound in inflation caused by the rebound in oil prices is not urgent enough for the Federal Reserve to start raising interest rates next week. Overall, the bank believes that the Federal Reserve is likely to maintain interest rates unchanged next week, but considering the resilience of the US economy and the stickiness of inflation, it is not unimaginable to raise interest rates again in the fourth quarter.

CICC: There is a high probability that the Federal Reserve will "hold still" next week, but there is still a possibility of interest rate hikes in the fourth quarter