US CPI: Largest monthly gain since January- Wells Fargo

Today’s data showed that the CPI index rose 0.3% in October. Analysts at Wells Fargo, point out that inflation was lifted by higher energy costs.They see that core inflation strengthened after a couple of soft prints and point out that the pickup suggests inflation continues to gradually firm and should keep the Federal Reserve on course to more rate hikes. 

Key Quotes: 

“Inflation bounced back in October, with the largest monthly gain since January. Consumer prices rose 0.3% last month with fairly widespread gains among subcomponents. One exception to this was food, where prices slipped 0.1%. On a year-ago basis, inflation is up 2.5% compared to 2.0% this time last year, but rising wages have kept real earnings rising. Higher energy costs were a driving factor in the pickup in inflation last month.”

“After coming in light in August and September, core inflation rose 0.19% in October. That should help alleviate fears that inflation has hit another soft patch, but the details suggest that core inflation is hardly getting out of hand.”

“Core goods prices posted the largest monthly increase since January, although that merely unwinds what looked to be undue weakness the previous month. Indeed, the curiously large 3.0% drop in used auto prices last month was almost entirely reversed. The dollar’s climb this year should keep goods prices from rising rapidly even as tariffs begin to seep into prices in the coming months.”

“The plunge in oil prices this past month stands to put downward pressure on inflation, but there is room to give before inflation looks at risk of falling to levels inconsistent with the Fed’s target. Today’s rebound in core inflation suggests the underlying trend remains modestly higher. While businesses are beginning to see a break on some commodity prices, tariffs and a tight labor market are pushing other costs higher. We expect core inflation to trend up in the year ahead, spurred by more businesses willing to raise prices.”