- Headline inflation rate edged higher to 1.8%
- Food price inflation matched a multi-year high of 2.1% y/y
- Core CPI dipped to 2.3%, a touch below expectations
US CPI was a mixed bag in October with headline inflation coming in slightly higher than expected but the core reading ticking down a notch. Food prices continued to increase while energy disinflation lessened amid higher gasoline prices. A slightly lower ex food and energy reading reflected slowing in core goods inflation which hit a multi-year high over the summer.
After cutting rates again in October, the Fed signaled its mid-cycle adjustment is complete barring an unexpected deterioration in the economic outlook. While downside risks from trade tensions and slowing global growth were the key drivers of the Fed’s insurance cuts, slow inflation early in the year was also a factor, and the Fed’s growing confidence that inflation is headed back to 2% contributed to their hitting pause two weeks ago. Today’s data suggest little risk of the increase in inflationary pressure that Chair Powell said it would take for the Fed to reverse this summer’s rate cuts. At the same time, another near-cycle-high core CPI reading supports the view that slower inflation earlier this year was due to transitory factors. Overall, today’s report does little to change our view that the Fed has moved to the sidelines for an extended period, so long as downside risks don’t materialize. We think Chair Powell will share a similar view at his JEC testimony today.
