Highlights:
- Year-over-year headline CPI growth edged down from 2.0% from 2.2% in September as part of a surge in September gasoline prices was reversed.
- Food prices were unchanged on a month-over-month basis, but the year-over-year rate ticked up to 1.3% – its highest reading since November 2015.
- Excluding food & energy prices, ‘core’ CPI inched up 0.2% on a month-over-month basis and the year -over-year ticked up to 1.8% after 5 straight 1.7% readings.
The headline year-over-year rate dipped lower to 2.0% but only because gasoline prices partially retraced a hurricane-related 13% surge in September. Energy prices were still up 6.4% from a year ago.
Year-over-year food price growth ticked up to 1.3% – still modest but nonetheless the fastest annual gain for the component since November 2015.
Core CPI increased 0.2% on a month-over-month basis. That was enough to push the year-over-year rate of growth in October up to 1.8% after five straight 1.7% readings. A sharp drop in telecommunication prices earlier this year is still biasing the measure lower. Excluding that drop, core price growth would be right at the Fed’s 2% inflation objective. There is still little evidence that inflation is getting out of hand but the stabilization in core measures in recent months and indications that demand growth remains solid – including somewhat stronger-than-expected October retail sales separately reported this morning – should reassure the Fed that price growth will tick higher rather than lower going forward. A 25 basis point hike in the fed funds target range is widely expected in December. We continue expect further demand growth and further tightening in labour markets will ultimately prompt a gradual hiking cycle to continue next year.
