|

US Inflation Preview: Stability in core CPI, temporary gain in consumer index

  • US annual Core Inflation is expected to be stable in October
  • The 12-month inflation prospect is lower on energy, crude oil  peaked in early October
  • Limited market impact, Fed on track for December

The US Bureau of Labor Statistics will issue the Consumer Price Index for October on Wednesday November 14th at 13:30 GMT, 8:30 am EST. 

Expectation: Price gains before a longer decline

Consumer prices in October are predicted to to show a strong surge in October rising 0.3% on the month from 0.1% in September and 2.5% percent on the year up from 2.3%.  Core price changes are projected to gain 0.2% monthly following September's 0.1% increase. Annual prices are expected to be unchanged at 2.2%.  A portion of the October price pressure is a carryover from the rapid rise in crude oil prices in September.  Rents and used car prices which slowed in September are also anticipated to rebound.

The producer price index (PPI) for October reported last week, tripled expections, rising 0.6% monthly on a 0.2% estimate and 2.9% annually over a 2.5% prediction. Core PPI increased 0.5% and 2.6%  on 0.2% and 2.3% predictions.  Business may attempt to pass some of these costs on to consumers but will be limited by the overall stable inflation picture.

Crude oil prices peaked in early October.  West Texas Intermediate jumped 13.2% from  $67.50 on September 10th to $76.25  on October 3rd.  Rising production from shale fields in the United States and commitments from traditional producers in the Middle East have since reduced the price of a barrel of oil by  almost a third to to $58.70. This decline will soon make its way into energy prices in the United States lowering the overall inflation rate, though leaving the core rate largely unaffected. 

Federal Reserve and the dollar

The governors of the Federal Reserve pay close attention to inflation, one of their Congressional mandates is for price stability. With the Fed's 2%  core infllation achieved the increase in October inflation soon to be followed by an energy driven price decline will not afffect rate policy. A December 25 basis point increase in the Fed Funds rate, as projected in the September materials, is priced at 78% in the Fed Fund futures. 

The dollar, supported by a strong US economy, the central bank's tightening policy and safe haven flows should remain on the offensive. 

Author

Joseph Trevisani

Joseph Trevisani began his thirty-year career in the financial markets at Credit Suisse in New York and Singapore where he worked for 12 years as an interbank currency trader and trading desk manager.

More from Joseph Trevisani
Share:

Editor's Picks

USD/JPY stays below 160.50 as markets assess BoJ decision

USD/JPY fluctuates in a relatively narrow range above 160.00 on Tuesday as markets assess the Bank of Japan's (BoJ) decision to raise the policy rate by 25 at the June meeting. Meanwhile, investors keep a close eye on news coming out of the Middle East, while preparing for the critical Fed meeting.

AUD/USD struggles for direction, still below 0.7100

AUD/USD looks to extend Monday’s recovery, although a challenge to the 0.7100 barrier remains elusive ahead of the opening bell in Asia. The Aussie Dollar was unable to take advantage of the RBA's relatively cautious message, which included keeping its OCR unchanged at 4.35% and leaving the possibility of further tightening in the future.

Gold: $4,000 or $4,500? The Fed may decide Gold’s next big move

Gold now surrenders part of its initial advance and recedes to the vicinity of the $4,350 mark per troy ounce on Tuesday. The early enthusiasm sparked by the US-Iran peace deal has faded somewhat, prompting investors to adopt a more prudent stance as they await further details of the agreement and key guidance from the Fed.

XRP pulls back as subdued ETF inflows, layered resistance cap upside
Ripple (XRP) remains elevated above $1.23 at the time of writing on Tuesday, struggling amid a capped upside. Despite an improved overall market sentiment driven by news of a peace agreement between the United States and Iran to end the war in the Middle East, capital inflows remain notably subdued.
1% rate, 160 Yen: Why Japan’s historic hike changed little
The Bank of Japan (BoJ) pushed its short-term policy rate to 1% on Tuesday, the highest setting since 1995 and a 31-year milestone in a normalization cycle barely two years old. It is the kind of number that should mark a turning point for the Yen, and it did almost nothing.
Why a hawkish RBA is no longer enough to lift the Australian Dollar

The Reserve Bank of Australia delivered more than what markets expected: a hawkish hold that should have supported the Aussie. But markets widely ignored it, focusing instead on slowing economic growth and proving that central bank messaging alone isn’t always enough to drive currencies.