Further evidence of disinflation is expected with October’s Consumer Price Index report. However, with inflation close to the Federal Open Market Committee’s 2% annual goal, jobs data is likely to have a greater bearing on the FOMC’s upcoming interest rate decisions. Still, relatively good news on inflation is expected.
When Is The October CPI Report?
CPI figures for the month of October 2024 are scheduled to be released on November 13 at 8:30 a.m. ET. This is the earlier of two major inflation releases for the month, with Personal Consumption Expenditure Price Index being released on at 10 a.m. ET on November 27 as part of the Personal Income and Outlays report. The FOMC prefers the PCE as an inflation metric. However, CPI tends to have more market impact because it is released earlier and the CPI and PCE metrics are often aligned.
Recent Trends In Inflation
Inflation has fallen significantly. It’s now much lower than elevated inflation levels seen from summer 2021 to early 2023. Back then, peak headline inflation exceeded 8%.
September’s CPI’s figures showed 2.4% annual headline inflation and 3.3% core inflation (core inflation removes food and energy price trends). The equivalent numbers from the PCE inflation report for September are 2.1% and 2.7%, respectively. Recent inflation data is much closer to the FOMC’s 2% annual target.
What To Expect From The CPI Report
Nowcasts for October inflation currently project a 0.18% monthly increase in headline inflation and a 0.27% increase in core CPI. Those projections, from the Cleveland Fed’s model, would be broadly consistent with recent months. If they hold we would see headline inflation rise slightly and core inflation trend lower.
A key category to watch will be housing costs. This is termed “shelter” within the CPI report. This category carries a major weight in the CPI series and has risen 4.9% for the past 12 months. As such, housing has contributed significantly to recent inflation. For September the monthly increase in shelter costs was a relatively low 0.2% compared to 0.4% rises for much of 2024 so far. If shelter cost inflation remains subdued, that may help move U.S. inflation lower still. Another consideration is energy costs, these have moved lower recently helping pull headline inflation down, but are excluded from core inflation calculations.
The FOMC’s Reaction To Inflation
The FOMC is becoming comfortable that inflation is under control. That’s why policymakers have started cutting interest rates and signaled that further cuts are coming. In essence, the FOMC is plans to remove a lot of the interest rate increases that were necessary as inflation surged. October’s inflation numbers are likely to provide more reassurance to the FOMC.
However, low inflation is only half the FOMC’s mandate. The other half is full employment. Over the coming months it’s likely that jobs data will really determine the FOMC’s decisions. If unemployment rises, the FOMC may cut faster. If not, they may still bring down interest rates but at a more moderate pace. Employment data for October was very soft with only 12,000 jobs added. However, this was due, in part, to the impact of hurricanes and strikes.
October’s CPI report should offer evidence that inflation is well under control. Still it’s data on the state of the jobs market, not CPI inflation, that could ultimately shape the FOMC’s upcoming decisions on interest rates.
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