October CPI report: Neither too hot nor too cold

Market response

November 13, 2024 | 2 min read
Seema Shah
Chief Global Strategist
Christian Floro, CFA, CMT
Market Strategist

The October CPI report aligned with consensus expectations, showing monthly prices rising at the same firm pace as in the previous two months. Investors have been increasingly nervous about the more inflationary aspects of President-elect Donald Trump’s policy proposals, so markets are likely to welcome today’s number despite inflation not decelerating. There will be another CPI release ahead of the next FOMC meeting, but today’s in-line number is neither strong nor weak enough to convince the Fed to deviate from a 25bps cut in December.

Report details

  • Monthly headline inflation rose 0.2% in October, as expected, bringing the annual rate to 2.6%—from 2.4% prior. Meanwhile, core inflation, which strips out food and energy, also came in as expected, increasing 0.3% in the month, leaving the annual rate unchanged at 3.3%. The recent run-rate of monthly inflation has continued to point higher, as the three-month annualized pace of core inflation rose to 3.6%—from 3.1% prior—after hitting a three-year low in August.
  • Food prices rose 0.2% in the month, with five of the six major grocery store food group indices notching an increase, though overall it reverted to its six-month average pace. Meanwhile, energy prices were flat in the month as fuel prices continued to decline, helping weigh on overall headline inflation.
  • Core inflation has remained range-bound, with the recent rise driven primarily by services, particularly shelter costs, which rose 0.4% and gave back some of its weakness last month. Contributing half of the total increase in headline inflation, shelter inflation is helping keep inflation sticky, amid a continued increase in owners’ equivalent rent, rising 0.4% in the month and refusing to see any sustained decreases. Medical care and airline fares also notched increases of 0.4% and 0.2%, respectively, in the month. Meanwhile, car insurance prices fell despite remaining 14% higher from a year ago as insurance premiums caught up to the rise in insurance costs. As for core goods inflation, prices were unchanged, with gains in used cars—rising 2.7% in the month, potentially driven by recent hurricanes—largely offset by losses in apparel—declining 1.5% in the month.
  • The Fed's preferred supercore inflation measure, which excludes shelter from core services and is primarily driven by wage costs, rose 0.31% in the period, the least in three months and slightly below the average for the year of 0.35%, leaving the annual rate at 4.4% in October.

Policy outlook

The October CPI report bucking the trend of the last two month’s consecutive upside surprises likely eases the Fed’s concerns around the risk of renewed price pressures, particularly amidst the continued strength of the U.S. economy—leaving the door open for a 25bps cut in December.

However, while inflation will likely continue on a disinflationary path, certain segments do remain sticky, and there are now risks that potential fiscal policy changes may materially impact inflation, inflation expectations, and economic growth. Though the Fed will proceed cautiously, there is an increasing likelihood that they may slow their cutting pace to every other meeting beginning in 2025 and reach a terminal rate that is higher than the Fed and the market had originally envisioned.

Macro views
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