Quiver Quantitative - The U.S. consumer price index (CPI) exhibited a significant slowdown in October, revealing only a marginal core metric rise of 0.2%, excluding the volatile food and energy sectors. This stall in inflation growth is sending strong signals that the Federal Reserve may halt rate hikes, as the core CPI, a preferred measure for assessing persistent price pressures, remained tempered due to lower gasoline costs. The overall CPI, reflecting a broader inflationary landscape, showed negligible change, aligning with the Fed's indications that their aggressive rate-raising campaign could be nearing its end.
The financial markets responded immediately to the inflation report, with the S&P 500 index seeing an uptick and Treasury yields falling, indicating that traders are discounting the possibility of further rate increases by the Fed. The data also led to an adjustment in predictions for when the Fed might cut rates, now anticipated in the first half of the following year. Wells Fargo’s chief economist Jay Bryson suggested that although the data is promising, a few more months of consistent core inflation readings would be necessary to officially declare a victory over inflation.
The detailed CPI figures showed a mixed bag of price movements, with rent and personal-care products seeing increases, while airfares and used cars experienced price drops. Shelter costs, a dominant component of the CPI, rose modestly at a rate that halved from the previous month. This moderation is crucial for achieving the Fed's inflation target, yet service prices outside of housing and energy also witnessed the least year-on-year increase in nearly two years.
Despite some relief in inflation, consumer budgets remain under pressure, with grocery prices escalating notably, reflecting steeper costs for staples such as meat and dairy products. However, real wages saw an uptick for the first time in three months, offering a glimmer of hope for consumer purchasing power. With the labor market's direction being pivotal to sustaining consumer spending and growth, and the potential for a government shutdown looming, which could disrupt future data releases, the economic outlook remains closely tied to policymakers' decisions on interest rates and government funding.
This article was originally published on Quiver Quantitative