Inflation likely eased slightly from last month

US inflation likely remained stubbornly high last month despite efforts by the Federal Reserve to get a grip on prices that have surged at a historic pace.

The Bureau of Labor Statistics’ Consumer Price Index (CPI) for October is scheduled for release at 8:30 am ET on Thursday. Economists surveyed by Bloomberg expected the headline reading to show an accelerated monthly increase of 0.6% from 0.4% in September, driven in part by the first jump in energy prices in four months.

The broadest measure is projected to have moderated to a 7.9% rise annually, down slightly from September’s year-over-year increase of 8.2%. Core CPI, which strips out the volatile food and energy components of the measure, is projected to come in at 0.5% on a monthly basis and 6.5% over the year, little changed from 0.6% and 6.6%, respectively, last month — the highest core prints since 1982.

The Federal Reserve keeps a closer eye on “core” inflation, which offers policymakers a more focused look at inputs like housing. Headline CPI, in contrast, has moved largely in conjunction with erratic energy prices this year.

Economists at Bank of America (BofA) project shelter to again be the primary driver of October’s core reading, as housing costs comprise nearly one third of the basket for consumer price inflation.

Transportation services are projected to remain elevated due to higher airfares and car and truck rental prices, while medical care costs may have declined, BofA noted.

Thursday’s data will offer investors hints on how Fed officials will move forward in their fight to restore price stability after raising interest rates by 75 basis points for a fourth straight time earlier this month. Investors currently anticipate a downshift in the size of December’s hike to a smaller increase of 0.50%.

“It isn’t just the ongoing pace of increase that is troublesome but the pervasiveness of surging prices across various spending categories that has scarred household budgets,” Bankrate Chief Financial Analyst Greg McBride wrote in a note. “Despite a half-dozen interest rate hikes by the Federal Reserve, any broad-based, significant, and sustained easing of inflation pressures remains elusive.”

WASHINGTON, DC - NOVEMBER 02: US Federal Reserve Bank Board Chairman Jerome Powell delivers opening remarks during a news conference following a meeting of the Federal Open Market Committee (FMOC) at the bank headquarters on November 02, 2022 in Washington, DC. In a move to fight inflation, Powell announced that the Federal Reserve is raising interest rates by three-quarters of a percentage point, the sixth interest rate increase this year and the fourth time in a row at rates this high. (Photo by Chip Somodevilla/Getty Images)

US Federal Reserve Bank Board Chairman Jerome Powell speaks at the bank headquarters on November 02, 2022 in Washington, DC. (Photo by Chip Somodevilla/Getty Images)

Moderations in economic data have prompted hopes that the US central bank will scale back on its aggressive policy stance, but Fed Chair Jerome Powell stressed earlier this month that no plans for a break were underway — dashing any such optimism.

“Restoring price stability will likely require maintaining a restrictive stance of policy for some time,” Powell said in prepared remarks after last week’s policy-setting meeting, later adding that officials have “some ways to go,” with payrolls still elevated and inflation readings that have not cooled quickly enough.

Federal Reserve officials have repeatedly signaled that the size and magnitude of hikes may slow despite the fight against inflation being nowhere near over, stoking the possibility of a higher-than-expected liftoff of its key policy interest rate.

A wave of Wall Street strategists have raised their bets on how much the central bank will ultimately raise its federal funds rate — and October’s CPI reading may confirm revised estimates.

Goldman Sachs was the first among big banks in the days leading up to November’s FOMC meeting to warn rates may rise as high as 5% by March 2023.

After Friday’s better-than-expected jobs report economists at Bank of America upwardly revised their projections to a terminal rate of 5.0-5.25% from 4.75-5.0% and said the institution anticipates a 0.50% increase for December.

TD Securities lifted its terminal rate forecast from a range of 4.75%-5.00% to 5.25%-5.50% and sees a 50-basis-point hike at the next meeting Dec. 13-14. BNP Paribas expects a fifth 75-basis-point increase next month and a terminal fed funds level of 5.25% in the first quarter of next year.

“We think risks to our revised FOMC rate path continue to lie to the upside and upcoming prints on CPI inflation and the November employment report will weigh heavily on the near-term path for Fed policy,” strategists led by Michael Gapen wrote in a Friday notes.


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