US CPI inflation matched expectations for an uptick to 2.6% in October, while core inflation held steady at 3.3%. Core inflation rose 0.28% on a month-on-month basis.
Monthly core inflation continues to trend well above 2%, and that stickiness will make it difficult for the Fed to continue cutting on a back-to-back basis. We haven’t seen any real disinflationary progress since the mid-summer.
That said, it is once again shelter-driven, which the Fed has flagged it’s not too concerned about, given the softer leading indicators and its high CPI weighting. The distribution of price rises also bodes well for a softer PCE print, as it is primarily the components that are lower PCE weighted that have been hotter in the CPI report.
The relatively drastic movements in yields are unjustified as this report matters little for the Fed rate path, although it suggests that the many in the market were positioned for a higher number. The details look reasonable enough for continued easing in the near term, but we have a lot of data to come before December, and into next year it is likely to be fiscal policy that comes to dominate the outlook.
