Breaking: US CPI inflation softens to 3.2% vs. 3.3% forecast

Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3.2% on a yearly basis in October, the US Bureau of Labor Statistics (BLS) reported on Tuesday. This reading came in below the market expectation of 3.2% and September's inflation print of 3.7%.

Follow our live coverage of the US inflation report and the market reaction.

The Core CPI, which excludes volatile food and energy prices, rose 4% in the same period, compared to analysts' estimate of 4.1%. On a monthly basis, the CPI remained unchanged, while the Core CPI increased by 0.2%.

"The index for shelter continued to rise in October, offsetting a decline in the gasoline index and resulting in the seasonally adjusted index being unchanged over the month," the BLS said in the press release. "The energy index fell 2.5% over the month as a 5.0% decline in the gasoline index more than offset increases in other energy component indexes."

Market reaction to US CPI data

The US Dollar came under heavy selling pressure with the immediate reaction. At the time of press, the US Dollar Index was down 0.65% on the day at 105.00 and the benchmark 10-year US Treasury bond yield was down nearly 3% on the day at around 4.5%.

Assessing the impact of the US inflation data on 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," said FXStreet Analyst Yohay Elam and added:

"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." 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.

USD   -0.79% -0.76% -0.16% -0.79% -0.27% -0.60% -0.57%
EUR 0.78%   0.03% 0.62% -0.12% 0.51% 0.18% 0.22%
GBP 0.75% -0.03%   0.59% -0.04% 0.49% 0.16% 0.20%
CAD 0.16% -0.63% -0.60%   -0.62% -0.12% -0.44% -0.38%
AUD 0.78% -0.01% 0.02% 0.61%   0.50% 0.17% 0.22%
JPY 0.27% -0.52% -0.48% 0.10% -0.52%   -0.31% -0.30%
NZD 0.59% -0.20% -0.16% 0.45% -0.17% 0.33%   0.03%
CHF 0.51% -0.22% -0.25% 0.40% -0.21% 0.30% -0.04%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).


Economic Indicator

United States Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Read more.

Next release: 12/12/2023 13:30:00 GMT

Frequency: Monthly

Source: US Bureau of Labor Statistics

Why it matters to traders

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

This section below was published at 03:00 GMT as a preview of the US October inflation data.

  • The Consumer Price Index in the US is forecast to rise 3.3% YoY in October, down from the 3.7% increase recorded in September.
  • Annual Core CPI inflation is expected to hold steady at 4.1% in October.
  • US CPI inflation report could significantly impact the US Dollar’s valuation by altering the market pricing of the Fed’s rate outlook.

The highly-anticipated US Consumer Price Index (CPI) inflation data for October will be published by the Bureau of Labor Statistics (BLS) at 13:30 GMT. 

The US Dollar (USD) has been holding steady against its major rivals, while struggling to gather bullish momentum following the July-October uptrend that saw the USD Index gain nearly 6%.

Although Federal Reserve officials remain committed to the data-dependent approach to monetary policy, the Federal Reserve (Fed) is widely expected to leave the interest rate unchanged at the 5.25%-5.5% range this year. According to the CME Group FedWatch Tool, markets are pricing in a more than 80% probability that the Fed will stand pat on policy at the December meeting. While speaking at a conference organized by the International Monetary Fund (IMF) last week, "we are making decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook for economic activity and inflation," Fed Chairman Jerome Powell said. 

US CPI inflation data could influence the market positioning regarding the Fed’s rate outlook, especially after Powell at the IMF event also said that they were not confident that they have achieved a “sufficiently restrictive” policy stance to bring inflation down to 2%.

What to expect in the next CPI data report?

The US Consumer Price Index, on a yearly basis, is expected to rise 3.3% in October, at a softer pace than the 3.7% increase recorded in September. The Core CPI figure, which excludes volatile food and energy prices, is forecast to rise 4.1% in the same period, matching the September print.

The monthly CPI and the Core CPI are seen rising 0.1% and 0.3%, respectively. Following four consecutive months of gains, Oil prices turned south in October, with the barrel of West Texas Intermediate falling 10%. Easing concerns over the Israel-Hamas conflict turning into a widespread conflict in the Middle East force Oil prices to remain pressured.

Previewing the US October inflation report, “core price inflation likely gained speed for a third month straight, printing a ‘soft’ 0.4% m/m increase,” said TD Securities analysts and explained:

“Goods prices likely added to inflation, while the housing segment probably slowed. Airfares/lodging will again be key wildcards. We also expect falling gas prices to help tame October headline inflation. Our m/m forecasts imply 3.3%/4.2% y/y for total/core prices.”

In the meantime, the Prices Paid Index of the ISM Services PMI survey edged slightly lower to 58.6 in October from 58.9, while the Price Index of the Manufacturing PMI rose to 45.1 from 43.8. These readings showed that input price pressures in the service sector remained strong in October and the deflation in the manufacturing input costs continued. 

When will the Consumer Price Index report be released and how could it affect EUR/USD?

The Consumer Price Index inflation data for October will be published at 13:30 GMT. A monthly core inflation reading of 0.5% or higher could attract hawkish Fed bets and provide a boost to the USD with the immediate reaction. On the other hand, a weak Core CPI increase of 0.2% or less could confirm a no change in the Fed policy and weigh on the currency. The market positioning suggests that a USD rally is likely to have more momentum behind it than a sell-off. 

FXStreet analyst Yohay Elam said that it would take “nasty upside surprises of 0.2% or more” for markets to reassess the Fed’s outlook. 

“If the data surprises to the downside, the party on Wall Street would continue, while the US Dollar would suffer another blow,” Elam added. “In case data comes out as expected, the drop in headline inflation will likely trigger an immediate positive impact on equities and put pressure on the US Dollar – even if Core CPI remains stubbornly elevated.” 

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains: 

“The Relative Strength Index (RSI) indicator on the daily chart stays slightly above 50, showing a lack of directional momentum. EUR/USD holds dangerously close to 1.0650, where the Fibonacci 23.6% retracement of the July-October downtrend is located. A daily close below this level could attract technical sellers and open the door for an extended decline toward 1.0600 (psychological level) and 1.0500 (static level, psychological level).”

“The 1.0750 level (Fibonacci 38.2% retracement) aligns as first resistance before 1.0800 (100-day Simple Moving Average (SMA), 200-day SMA). If the pair climbs above this level and starts using it as support, it could be seen as a convincing sign that EUR/USD is in an uptrend. In this scenario, 1.0850 (Fibonacci 50% retracement) and 1.0950 (Fibonacci 61.8% retracement) could be set as next bullish targets.”

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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