Benchmark revision shows less worrisome US inflation

Recent increases in US long-term rates surprisingly little impacted by inflation expectations

Even with strong capex, US nonfinancial corporations are generating more cash than they are investing

Investor sentiment worldwide is positive, especially in AI-led Asia

Sectoral shift in US job openings

Meteoric rise in AI-related semiconductor exports fueling South Korea's export boom

Regional Fed surveys showing further manufacturing acceleration in August

Sharp drop in China demand for oil helping to limit impact of Middle East conflict on the price

Decades high real price of copper posing physical challenge to investment boom

Rising US long-term real yields point to strong demand for investment funding

US retail sales accelerate even as consumers remain gloomy

Retail gasoline price still well above pre-conflict level and now rising again

PMIs showing widespread revival of global economy

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

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Jonathan Basile

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The U.S. Consumer Price Index (CPI) rose 0.6% month-over-month (MoM) in September. Historically speaking, how rare is a 0.6% MoM increase? Monthly gains of 0.6% or larger took place about 15% of the time in the postwar period; that number drops to a 3% hit rate since 2000. More recently, there were twelve occurrences in 2021 (after the COVID-19 pandemic) and 2022 (after Russia’s invasion of Ukraine). For 2026, besides September, there were two others at the onset of the Iran War in March and April 2026.

Energy was a big part of the sequential performance, while food was not. The CPI for energy increased 5.2% in September following a 2.1% rise in August. Gasoline was a significant mover, posted a 9.1% MoM advance. This accounted “for over half of the monthly all items increase,” according to the Bureau of Labor Statistics (BLS). The CPI food index registered a flat reading in September, the first unchanged reading since March. The tame showing was generated by a 0.1% MoM decrease in Food at home, the second monthly drop in the last three months, while Food away from home rose at a lesser 0.2% MoM after back-to-back 0.3% gains.

Core CPI, excluding food and energy, rose 0.3% MoM in September matching August’s rise. Price pressures were propped up by both core goods (up 0.3% MoM from 0.1%) and core services (up 0.4% MoM versus 0.3%). The 0.3% core beat market expectations for a 0.2% increase and lifted probably for a Fed rate hike at the October 28th meeting to 44% from last Friday’s low of 17%.

On a year-over-year (YoY) basis, CPI inflation came in at 3.7%, up from the prior month’s 3.4%. CPI has posted a YoY inflation rate above 3% for the last seven months ended September. This hasn’t happened since the seven months ended May 2024. Core CPI inflation edged up to 2.6% YoY in September from 2.4% YoY in August. While core remains in a down channel of lower highs and lower lows, it remained above the key 2% level for the 65th month running. The last time core CPI inflation had a string above 2% for a similar duration, it was the latter half of the 1990s.

Core services inflation is to blame as it stubbornly stayed north of the 3% mark in September (at 3.1% YoY). After persistent easing from the post-pandemic peak to the 2.9% YoY rates in January/February 2026, no further progress has been made to the downside. Core goods inflation, on the other hand, has grinded lower to 0.7% YoY rates in both August and September, less than half the 1.5% YoY figures reported in August and September 2025.

Shelter is a key reason why core CPI inflation isn’t back in line with the Fed’s target rate. When shelter is excluded from the core, the underlying inflation picture is tepid. September’s 2.0% YoY rate echoed August’s, and June’s and July’s respective 2.1% and 1.9% YoY rates averaged 2.0%. These non-threatening results present a compelling argument against Fed tightening over the balance of the year.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Energy drives headline gain.
- Food prices tame.
- Core shows underlying price pressures in both goods and services.

U.S. Consumer Price Index: Energy and Core Pressures Keep Fed Tightening Debate Active

Kathleen Stephansen, CBE

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Mortgage applications fell 2.7% w/w (-37.2% y/y) in the week ending October 9 for the sixth consecutive week, after declining 4.2% w/w (-36.6% y/y) in the week ending October 2, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 4.0% w/w (-16.1% y/y) in the latest week, after declining 2.1% w/w (-14.9% y/y) in the October 2 week. Applications for loan refinancing edged down 0.4% w/w (-56.0% y/y) in the October 9 week following a decline of 7.5% w/w (-56.3% y/y) in the October 2 week.

The effective interest rate on a 30-year fixed-rate loan edged up 2bps to 7.75% in the week ending October 9 from 7.73% in the week ending October 2, remaining at its highest level since November 2023. The rate on 15-year fixed-rate mortgages rose 12bps to 7.09% in the October 9 week from 6.97% in the October 2 week. The 30-year Jumbo rate increased 15bps to 7.69% in the latest week from 7.54% in the October 2 week, while the rate on a 5-year ARM declined 9bps to 6.96% in the October 9 week from 7.05% in the October 2 week.

The share of applications for refinancing an existing loan rose to 37.7% of total applications in the week of October 9 from 37.0% in the week ending October 2. The adjustable-rate mortgage (ARM) share of activity rose to 10.5% in the latest week from 10.3% in the October 2 week.

The average size of a mortgage fell 2.0% w/w (-7.5% y/y) to $370,200 in the week ending October 9, after declining 1.7% w/w (-5.1% y/y) to $377,700 in the week ending October 2. The average size of a purchase loan declined 0.8% w/w to $444,700 in the October 9 week after falling 0.6% w/w to $448,400 in the October 2 week. The average size of a loan to refinance a mortgage fell 3.9% w/w to $247,200 in the week ending October 9 after declining 7.0% w/w to $257,200 in the October 2 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Applications for loans to purchase and applications for loan refinancing both declined in the latest week.
- Interest rate on 30-year fixed-rate loans edged up 2bps to 7.75%.
- Average loan size fell moderately in the October 9 week.

U.S. Mortgage Applications Fell in the October 9 Week

Winnie Tapasanun

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Existing home sales rose 1.5% m/m (-2.2% y/y) to 3.99 million units (SAAR) in September, the first monthly increase since May, after a 3.2% decline to 3.93 million in August (previously -2.0%; 3.98 mil.), according to the National Association of Realtors (NAR). Despite the latest m/m gain, August and September marked the two slowest months for home sales in 2026. The Action Economics Forecast Survey had expected September sales of 3.96 million units. Sales were 2.3% above a low of 3.90 million in September 2024 but 37.9% below a high of 6.43 million in January 2022 and 39.5% below a peak of 6.60 million in January 2021. The September gain coincided with a rise in the average 30-year fixed mortgage rate to 6.86%, the highest since January 2025, after increasing to 6.67% in August, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales rebounded 2.0% (-1.9% y/y) to 3.64 million units in September, the first m/m rise in four months, following a 3.3% decrease to 3.57 million in August, still 36.1% below a high of 5.70 million in January 2022. Sales of condos and co-ops fell 2.8% (-5.4% y/y) to 350,000 in September, matching the lowest level since May 2020, after registering at 360,000 in August and at 370,000 from February through July, remaining 52.1% below a high of 730,000 in January 2022.

Regionally, September existing home sales showed a mixed performance. Sales in the South rose 2.8% (-0.5% y/y) to 1.86 million in September, the first m/m increase since May, after a 3.2% decline in August. Sales in the West grew 2.8% (-5.2% y/y) to 730,000, the highest level since June, after falling 1.4% in August and July. Sales in the Northeast fell 2.1% (-4.1% y/y) to 470,000, the lowest level since May, on top of a 4.0% August slide. Meanwhile, sales in the Midwest held steady m/m (-2.1% y/y) at 930,000 after a 4.1% August drop, matching the lowest reading since March. Notably, the South remained the dominant region, accounting for 46.6% of total U.S. existing home sales.

The median price of all existing homes (NSA) fell 2.4% (+1.3% y/y) to $417,500 in September, the lowest since April, after a 2.0% decrease to $427,700 in August ($429,100 previously). Prices remained 15.7% above a low of $360,800 in January 2023. The median price of an existing single-family home slid 2.5% (+1.2% y/y) to $422,700 in September following a 2.0% decline to $433,600 in August. Both prices posted the third successive m/m fall and the lowest level since April. The median price of condos and co-ops, down for the third consecutive month, slipped 1.7% (+1.2% y/y) to $363,700, the lowest since February, after a 1.3% August decrease to $370,000. Regionally, overall prices fell m/m in September in the Midwest (-3.9%; +3.1% y/y), Northeast (-3.4%; +4.7% y/y), South (-1.4%; +0.2% y/y), and West (-0.9%; -0.3% y/y).

Inventories of homes for sale advanced to the highest level since November 2019. The number of existing homes for sale (NSA) climbed 1.9% (4.6% y/y) to 1.60 million units in September after registering at 1.57 million during the May to August period. The supply of homes on the market at the current selling rate (NSA) held at 4.8 months in September and August, the highest level since November 2015, up from 4.6 months in July and June. A record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- September sales +1.5% m/m to 3.99 mil., first m/m rise since May; -2.2% y/y, second straight y/y drop.
- Sales m/m up in the South (+2.8%) and West (+2.8%); down in the Northeast (-2.1%); flat in the Midwest.
- Sales y/y down in all four regions, w/ the steepest decline in the West (-5.2%).
- Median sales price -2.4% (+1.3% y/y) to $417,500, lowest since April.
- Unsold inventory +1.9% (+4.6% y/y) to 1.60 mil. units, highest level since Nov. ’19; 4.8 months' supply, highest since Nov. ’15.

U.S. Existing Home Sales Rebound in September

Tian Yong Woon

In this week’s Letter, we look past traditional drivers of exchange rates (e.g. interest differentials) to the real, and largely domestic, forces now shaping Asia’s currency and fixed income markets. Currency performance has diverged sharply this year, with the South Korean won (KRW), Chinese yuan (CNY), and Australian dollar (AUD) gaining on a trade-weighted basis while the Philippine peso (PHP), Thai baht (THB), Indian rupee (INR), and Indonesian rupiah (IDR) have lagged (chart 1). Daily moves against the dollar sort into two clusters (chart 2). One is a tight group of CNY, AUD, New Zealand dollar (NZD), THB, Singapore follar (SGD) [AC1.1]and Malaysian ringgit (MYR), reflecting a common dollar effect and the region’s close trade ties with China. The other, looser group links PHP, IDR and KRW. Yield differentials explain only part of this dispersion (chart 3). Across 13 economies, changes in 10-year spreads over the US account for a modest share of currency returns. Stripping out outliers improves the fit considerably, perhaps suggesting spreads still matter once idiosyncratic stories are set aside. In fixed income markets, economy-specific drivers have dominated. Indonesia, Australia, New Zealand and, most recently, India have tightened, yet real policy rates remain slightly negative in half the region (chart 4), leaving policy accommodative in real terms. Real bond yields have also climbed in Japan, Korea and Australia (chart 5), pointing beyond inflation expectations to heavier fiscal spending, the AI-driven export boom and tighter policy. Looking ahead, a strengthening El Niño, disrupted traffic through the Strait of Hormuz, the AI buildout and the risk of renewed US-China friction (chart 6) will shape the region’s fiscal and monetary planning. That, in turn, will steer the path of yields and currencies in the period ahead.

**Asia currencies**
Trade-weighted currency performance across Asia has been strikingly uneven this year (chart 1). KRW and CNY have each significantly against their trading partners[AC2.1], with AUD not far behind. At the other end, PHP, THB, INR and IDR have each lost much ground on the same basis. Between these extremes, SGD, MYR, JPY and TWD have moved by about 2% or less in either direction. Some of this relative performance reflects correlated trades, whether with commodity prices or with other currencies. Yet a range of other drivers has also been at work, including economy-specific domestic considerations such as inflation, policy settings and external balances. Against the US dollar alone, the spread is wider still, from a gain of about 7% for KRW to a loss of a similar size for INR (chart 3). The sections that follow take these drivers in turn, starting with how the region’s currencies move together.

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We start with the cross-currency correlations across Asian and major economies, measured on daily returns against the US dollar this year. Two main clusters emerge (chart 2). The first, and tighter, groups CNY, AUD, NZD, THB, SGD and MYR, with TWD attached to a somewhat lesser extent. The second, weaker cluster links PHP, IDR and KRW. The first cluster reflects a confluence of drivers. One is a common US dollar effect, since every pair is quoted against the dollar and so shares its swings. Another is the pull of CNY on the other currencies in the group, which likely reflects the region’s traditionally close trade ties with China. Stripping away these effects, some of the strongest remaining links are between AUD and NZD, and between SGD and MYR. In Singapore’s case the link is partly mechanical, since SGD is managed against a trade-weighted basket of its main trading partners’ currencies, which includes Malaysia’s.

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Yield differentials are a common gauge of currency performance but explain only part of the picture (chart 3). Regressing year-to-date currency returns against the US dollar on changes in 10-year spreads over the US gives an R² of about 0.2 across 13 economies. Carry logic would place economies in the top-right and bottom-left quadrants, with currencies strengthening as spreads widen and weakening as they narrow. Excluding borderline cases, only New Zealand, the euro area and India sit clearly within them, all in the bottom-left. Yet the fitted line slopes downward: economies whose spreads narrowed most have seen stronger currencies. Australia, Korea and India are vertical outliers, sitting far above or below the fitted line, so their currency moves owe little to their spreads. The Philippines is a leverage point: its extreme horizontal position gives it outsized pull on the fitted line itself. Its spread has widened about 1pp while the peso has fallen about 6%. Outside these cases, the R² rises to about 0.6 to 0.7. Even so, the inverted slope suggests something other than carry is at work.

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**Asia rates**
Asia’s rates environment this year has been shaped by economy-specific drivers alongside broad external developments, and several central banks have tightened (chart 4). The RBA has hiked four times to 4.60%, most recently in September, citing sticky core inflation and capacity pressures. Bank Indonesia raised its policy rate by a cumulative 100bp in May and June to 5.75%, to stabilise the rupiah amid volatility from the Middle East conflict. The RBNZ has added 50bp since July, with headline inflation reaching 4.1% y/y in Q2, largely on fuel prices. Most recently, the RBI raised its repo rate to 5.50% on 7 October, its first hike since February 2023. Even so, real policy rates remain slightly negative in half the economies charted, including the Philippines, Thailand and New Zealand, leaving policy there accommodative in real terms. Where real rates are positive, as in Indonesia at about 2.5%, central banks hold more buffer against further inflation shocks.

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Part of the recent surge in nominal yields reflects inflation expectations, given lingering price risks from the US-Iran conflict and, more recently, building food price risks from El Niño. Yet real yields have climbed too (chart 5), suggesting more than an inflation story. Japan’s 10-year real yield has risen to just under 1%, from around minus 0.5% in 2024. That rise has coincided with market concern over heavier fiscal spending, including a supplementary budget for energy subsidies financed by deficit bonds. Korea’s real yield has climbed to about 1.7%, from roughly 0.4% in mid-2025, as the AI-driven chip export boom has lifted growth and rate hike expectations. Australia’s has reached about 3%, its highest over the period shown, alongside four RBA hikes and persistent capacity pressures. In each case, higher real yields point to expectations of tighter policy and stronger demand for capital, whether from governments or from investment.

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**The road ahead**
The road ahead remains uncertain, with several forces still in play (chart 6). The Southern Oscillation Index has fallen deep into negative territory, consistent with a strengthening El Niño that threatens harvests across South and Southeast Asia. Trade volumes through the Strait of Hormuz collapsed after the conflict began in late February and remain a fraction of their 2025 level in the latest data. The AI capex and buildout phase is a third force, with its effects on growth, trade and bond markets still unfolding. US-China relations have also returned to the spotlight, following the recent summit. Global economic policy uncertainty, by contrast, has eased from its April 2025 peak. How these forces play out will shape domestic fiscal and monetary planning in the period ahead, and by extension the path of yields and currencies across the region.

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Asia

Economic Letter from Asia: Keeping it Real

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Initial claims for unemployment insurance dropped by 2,000 to 197,000 in the week ending October 3, from 199,000 in the week ending September 26, revised up from 197,000. The Action Economics/Haver Analytics Survey looked for 200,000 claims to have been filed. The four-week moving average was 198,000 in the October 3 week, down from 200,500 in the September 26 week, revised from 200,000.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 17,000 to 1.716 million in the week ending September 26, from 1.699 million in the week of September 19, revised down from 1.701 million. The four-week moving average was 1.711 million in the September 26 week versus 1.723 million in the prior week. The insured unemployment rate remained unchanged at 1.1% in the week of September 26.

In the week ending September 19, the highest insured unemployment rate was in New Jersey (2.02%), the only state above 2.00%. The lowest rates were in South Dakota (0.20%), Louisiana (0.30%), Florida (0.31%), Alabama and North Dakota (both 0.34%), North Carolina (0.36%), Arkansas (0.39%), Iowa (0.42%), Kansas and Tennessee (both 0.43%), Kentucky and Nebraska (both 0.45%), Idaho and Wyoming (both 0.46%), New Hampshire (0.48%), and Georgia and Virginia (both 0.49%). Among other notable states, the rate was 0.97% in Texas, 1.21% in Pennsylvania, 1.30% in Illinois, 1.42% in New York, and 1.69% in California. These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.


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- New claims dropped by 2,000 to 197,000 in the week of October 3.
- Continuing claims rose by 17,000 to 1.716 million in the week ending September 26.
- The insured unemployment rate was unchanged at 1.1% in the week of September 26.


U.S. Initial Unemployment Claims Dropped in the Week of October 3

Economy in Brief: September 2014

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