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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.

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