US Inflation Quick Analysis: Christmas comes early to markets, US Dollar set to extend falls

Goldilocks – not too hot, nor too cold. The October's fresh Consumer Price Index (CPI) report continues pointing to that direction. The economy is cooling down, but at a steady pace, far from causing alarm.

Headline inflation remained flat MoM in October, below the 0.1% expected, and it came out at 3.2% YoY, also a miss of the same scale. Core CPI, which excludes volatile food and energy costs, also fell short of estimates: 0.2% MoM and 4% YoY. That is good news for consumers and also for investors. 

Christmas has come early to markets. 

The CPI report joins the Nonfarm Payrolls (NFP) report, which showed an increase of only 150,000 jobs in October. That was below the pre-pandemic norm of just under 200,000, but still pointing to growth. 

A soft-landing scenario is perfect for stocks, as companies benefit from both lower rates but healthy consumer demand. For the US Dollar, the data is adverse – expectations for lower borrowing costs weigh on the Greenback, while the currency does not benefit from safe-haven flows. A recession is not on the horizon. 

The lack of deflation – contrary to the picture seen in China ~ is a positive sign for the US economy. 

Investors have little time to rest. On Wednesday, the US publishes the Producer Price Index (PPI) report, which provides information about inflation in the pipeline. More importantly, the Retail Sales report will provide insights on how shoppers are behaving. Consumption is roughly two-thirds of the world's largest economy. 

US Retail Sales Preview: Dollar set for a discount as low expectations may be insufficiently low