| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.2% | 0.2% to 0.3% | 0.2% | 0.2% |
| CPI - Y/Y | 2.6% | 2.5% to 2.6% | 2.6% | 2.4% |
| Ex-Food & Energy- M/M | 0.3% | 0.2% to 0.3% | 0.3% | 0.3% |
| Ex-Food & Energy- Y/Y | 3.3% | 3.2% to 3.3% | 3.3% | 3.3% |
Highlights
The October consumer price index (CPI) is up 0.2 percent month-over-month and up 2.6 percent year-over-year. This matches the consensus in the Econoday survey of forecasters. The October core CPI excluding food and energy is up 0.3 percent from the prior month and up 3.3 percent compared to a year ago. This also matches the survey consensus.
The CPI annual increases suggest that the pace of disinflation may have stalled again. As noted above, the CPI annual increase is 2.6 percent, which is above the up 2.4 percent in September and up 2.5 percent in August. The core CPI year-over-year increase of 3.3 percent is the same as in September and slightly higher than up 3.2 percent in September.
Some of this may be due to a deceleration in the improvement in commodities prices which had powered rapid disinflation from the peaks in mid-2022. Supply chains have healed and fundamentals are reasserting themselves. In October, the commodities price index is unchanged from the prior month and down 1.0 percent year-over-year. The services index is not decelerating. The services index is up 0.4 percent in October from September and in line with recent readings. The year-over-year increase is 4.7 percent, the same as in September.
Prices for food and beverages are up 0.2 percent month-over-month is October and up 2.1 percent year-over-year. Energy prices are unchanged in October from September and down 4.9 percent from a year ago.
Shelter costs have kept the index for services elevated and account for about 1/3 of the overall CPI basket. The shelter index is up 0.4 percent in October from September and up 4.9 percent compared to October 2023. The special aggregate index for services less rent of shelter is up 0.4 percent month-over-month in October and up 4.5 percent year-over-year.
The CPI excluding food, energy, and shelter is up 0.2 percent in October from September and up 2.1 percent compared to October 2023. This indicates that upward price pressure has eased for many categories, but not necessarily for the three most critical to households and which have a big effect on discretionary spending decisions.
Fed policymakers will have one more CPI report on Wednesday, December 11 at 8:30 ET before the FOMC meeting on Tuesday and Wednesday, December 17 and 18. At the moment the inflation data does not change the outlook for another rate cut in December. However, the FOMC is data-dependent and on a meeting-by-meeting basis. The FOMC might pause in this early rate cut cycle if participants are more concerned about the risks to price stability.
The CPI annual increases suggest that the pace of disinflation may have stalled again. As noted above, the CPI annual increase is 2.6 percent, which is above the up 2.4 percent in September and up 2.5 percent in August. The core CPI year-over-year increase of 3.3 percent is the same as in September and slightly higher than up 3.2 percent in September.
Some of this may be due to a deceleration in the improvement in commodities prices which had powered rapid disinflation from the peaks in mid-2022. Supply chains have healed and fundamentals are reasserting themselves. In October, the commodities price index is unchanged from the prior month and down 1.0 percent year-over-year. The services index is not decelerating. The services index is up 0.4 percent in October from September and in line with recent readings. The year-over-year increase is 4.7 percent, the same as in September.
Prices for food and beverages are up 0.2 percent month-over-month is October and up 2.1 percent year-over-year. Energy prices are unchanged in October from September and down 4.9 percent from a year ago.
Shelter costs have kept the index for services elevated and account for about 1/3 of the overall CPI basket. The shelter index is up 0.4 percent in October from September and up 4.9 percent compared to October 2023. The special aggregate index for services less rent of shelter is up 0.4 percent month-over-month in October and up 4.5 percent year-over-year.
The CPI excluding food, energy, and shelter is up 0.2 percent in October from September and up 2.1 percent compared to October 2023. This indicates that upward price pressure has eased for many categories, but not necessarily for the three most critical to households and which have a big effect on discretionary spending decisions.
Fed policymakers will have one more CPI report on Wednesday, December 11 at 8:30 ET before the FOMC meeting on Tuesday and Wednesday, December 17 and 18. At the moment the inflation data does not change the outlook for another rate cut in December. However, the FOMC is data-dependent and on a meeting-by-meeting basis. The FOMC might pause in this early rate cut cycle if participants are more concerned about the risks to price stability.
Market Consensus Before Announcement
More of the same is the call with a familiar 0.2 percent increase for total CPI on the month and a 0.3 percent rise for the core. Year on year, forecasts center on 2.6 percent for total CPI, up from 2.4 percent in September, and the consensus looks for a 3.3 percent increase for the core. Reports like this have been making investors restless about lack of progress toward the 2 percent target.
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.
