| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.1% | 0.0% to 0.2% | 0.0% | 0.4% |
| CPI - Y/Y | 3.3% | 3.2% to 3.4% | 3.2% | 3.7% |
| Ex-Food & Energy- M/M | 0.3% | 0.2% to 0.3% | 0.2% | 0.3% |
| Ex-Food & Energy- Y/Y | 4.1% | 4.0% to 4.1% | 4.0% | 4.1% |
Highlights
Inflation data brought some good news at the beginning of the fourth quarter, with consumer prices flat in October, bringing down the 12-month rate to 3.2 percent from 3.7 percent. Forecasts in an Econoday survey had centered on a 0.1 percent monthly increase and a 3.3 percent year-over-year advance.
Core inflation, excluding food and energy, rose 0.2 percent on the month and 4.0 percent year-over-year, both below expectations of 0.3 percent and 4.1 percent, respectively, and marking a slowdown from September. Though at its lowest level since September 2021, the 12-month core rate remains twice as high as the Federal Reserve's 2 percent target. Still, the report should bring relief to both the Fed and markets given improvement underway; core inflation started the year at 5.6 percent year-over-year.
In October, energy prices dropped 2.5 percent on the month and 4.5 percent year-over-year, while food was up 0.3 percent, for a 12-month appreciation of 3.3 percent.
While shelter prices increased half as much as in September, they were still up 0.3 percent on the month, offsetting the decline in energy. Rent rose 0.5 percent and owners' equivalent rent increased 0.4 percent. Shelter was the largest contributor to the core CPI advance on the month. The CPI excluding shelter was down 0.1 percent after rising 0.3 percent in September. Motor vehicle insurance was up 1.9 percent after rising 1.3 percent in September. Other increases included recreation, personal care, apparel and medical care. Note that starting with the October report, changes were made to the health insurance methodology.
On the downside, used car and truck prices fell 0.8 percent, and household furnishings and operations and new vehicles both edged down 0.1 percent.
Overall, services increased 0.3 percent after rising 0.6 percent the previous month, while prices for durables were down 0.5 percent and prices for nondurables fell 0.7 percent.
Core inflation, excluding food and energy, rose 0.2 percent on the month and 4.0 percent year-over-year, both below expectations of 0.3 percent and 4.1 percent, respectively, and marking a slowdown from September. Though at its lowest level since September 2021, the 12-month core rate remains twice as high as the Federal Reserve's 2 percent target. Still, the report should bring relief to both the Fed and markets given improvement underway; core inflation started the year at 5.6 percent year-over-year.
In October, energy prices dropped 2.5 percent on the month and 4.5 percent year-over-year, while food was up 0.3 percent, for a 12-month appreciation of 3.3 percent.
While shelter prices increased half as much as in September, they were still up 0.3 percent on the month, offsetting the decline in energy. Rent rose 0.5 percent and owners' equivalent rent increased 0.4 percent. Shelter was the largest contributor to the core CPI advance on the month. The CPI excluding shelter was down 0.1 percent after rising 0.3 percent in September. Motor vehicle insurance was up 1.9 percent after rising 1.3 percent in September. Other increases included recreation, personal care, apparel and medical care. Note that starting with the October report, changes were made to the health insurance methodology.
On the downside, used car and truck prices fell 0.8 percent, and household furnishings and operations and new vehicles both edged down 0.1 percent.
Overall, services increased 0.3 percent after rising 0.6 percent the previous month, while prices for durables were down 0.5 percent and prices for nondurables fell 0.7 percent.
Market Consensus Before Announcement
Core prices in October are expected to hold steady at plus 0.3 percent to match September's as-expected increase. Overall prices are expected to slow to 0.1 percent after September's 0.4 percent increase. Annual rates in September,, at 3.7 percent overall and 4.1 percent for the core, are expected at 3.3 and 4.1 percent, respectively.
Definition
The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.
The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.
The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.
Description
The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.
If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
