EconoFACTS

November 13, 2024 | 09:54

October CPI: No Surprises but Still a Work in Progress

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

U.S. CPI inflation was in line with our forecast and the consensus for October. CPI prices increased 0.2% m/m, the same pace we have seen for four consecutive months. These data continue a string of six months of moderate consumer inflation, a measurable downshift from the first four months of the year. Nothing in the CPI report will preclude the Federal Reserve from one more quarter point rate cut before the end of the year.

With that said, forward momentum of disinflation appears to be diminishing with inflation of 2.6% year-on-year (up from September's 2.4% y/y pace) still uncomfortably above the Fed’s 2.0% target. Bond yields could remain jumpy as investors try to gauge the extent of fiscal stimulus from the new Trump Administration, rising budget deficits, and impact on inflation expectations as the Fed tries to normalize interest rates.

The details of the report continued to show uncomfortably firm services (+0.4%) and housing (+0.4%) inflation. The BLS noted that shelter inflation accounted for over half of October's overall monthly gain. Large price increases were also seen last month for used cars (+2.7%), air fares (+3.2%), medical care services (+0.4%), and recreation (+0.4%). Helping to keep overall CPI inflation contained were declines in gasoline (-0.9%), and apparel (-1.5%) prices, while prices for goods and new vehicles were unchanged. Food inflation also moderated, providing some relief for household budgets, rising only 0.1% in the month for food at home and 0.2% for food away from home, compared to September increases of 0.4% and 0.3%, respectively.

A bit of a disappointment was core CPI inflation, which remained sticky at a slightly-elevated 0.3% in October, where it has remained over the past three months, though this was also in line with our and the consensus expectation. The 3-month average core CPI inflation is still running at a “hot” 3.6% annualized, well above the Fed’s 2.0% target. From a year ago, core CPI inflation held at an unsettling 3.3%... in line with forecasts and September’s year-on-year reading.

Bottom Line: The CPI inflation report for October was very close to expectations but stubborn inflationary pressures in the housing and service sectors continue to stymie the good news coming from goods and energy inflation. Markets will continue to suspect the Fed is not completely done with its inflation fight and may need to pivot their rate-cutting expectations next year given possible inflationary changes in U.S. fiscal policy. Forward progress on core inflation has stalled somewhat above the Fed’s target and could slow the Fed’s progress toward a neutral rate next year. Nothing in this report would keep the Fed from cutting in December, but the number of rate cuts in 2025 remains highly uncertain. The Fed will be taking its rate decisions one meeting at a time and will need to minimize its forward guidance.

Table 1 - United States — CPI

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics