The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in October, in line with the consensus forecast. On a twelve-month basis, CPI ticked up to 2.6% (from 2.4% in September).
- Energy prices were flat last month, as a pullback in gasoline prices (-0.9% m/m) was offset by an uptick in electricity costs (+1.0% m/m). Food prices rose 0.2% m/m, following a sharp 0.4% m/m gain in September.
Excluding food and energy, core prices rose 0.3% m/m, matching the two prior-months’ gains. The twelve-month change held steady at 3.3%, while the three-month annualized shot higher to 3.6% (from 3.1% in September).
- Price growth on core services were up 0.35% m/m, in line with September’s gain. On a year-ago basis, services prices are up 4.8% or roughly two percentage points above its pre-pandemic pace of growth when inflation was running closer to 2%.
- Primary shelter costs rose 0.4% m/m, following a gain of 0.3% m/m in September. While well off its 2023 highs of over 8%, primary shelter costs remain elevated at 5.1% y/y.
Price growth of non-housing services inflation (aka “supercore”) remained firm, rising 0.3% m/m – roughly in line with the average gain recorded over the past three months. The continued strength was primarily driven by another strong gain in airline fares (+3.2% m/m), recreational services (+0.7% m/m) and to a lesser extent, medical care services (+0.4% m/m).
Core goods prices were flat in October, after registering a gain the month prior. A pullback in apparel (-1.5% m/m) and education & communication goods (-1.1% m/m) helped to offset a sharp gain in used vehicle prices (+2.7% m/m).
Key Implications
Progress on the inflation front has slowed to a snail’s pace in recent months as services inflation is looking increasingly sticky, while much of the disinflationary pressure from fallings goods prices is now in the rear-view mirror. All of this suggests that the last leg lower on returning inflation to the Fed’s 2% target is going to occur much more gradually.
From the Fed’s standpoint, there was little in this morning’s data to get excited about. The three-month annualized rate of change on core inflation jumped to a six-month high, while the six-and-twelve-month rates of change held steady at 2.6 and 3.3% respectively. With inflation progress stalling but the economy still holding up, November’s employment report will carry added significance for whether the FOMC continues cutting at its next meeting in December or opts to pause. Following this morning’s release, markets are pricing a 70% probability that the Fed cuts next month.
