In this morning’s data, the Consumer Price Index (CPI) was flat in October, slightly less than expected. It grew 3.2% on an annual basis, less than the annual level the previous month. Monthly prices for Utility (Piped) Gas Service, up 1.2%, and Transportation Services, up 0.8%, were relatively strong, while monthly prices for Gasoline, down -5.0%, were relatively weak. Prices for Shelter were up 0.3% in October which was less than the 0.6% increase the previous month. The core rate, which excludes prices for food and energy, increased 0.2% in October, also less than expected and grew 4.0% on an annual basis.
Overall, headline CPI inflation moderated in October as gasoline prices were relatively weak. The monthly core CPI was higher than the headline number but less than expected, and the annual figure is still double the Federal Reserve’s 2% target. Also, lower shelter prices hint at the disinflation evident in the report. Even as economic data show some slowing, the Fed may decide to keep rates higher for even longer to ensure core inflation measures move closer to their target. This process should adversely impact consumer spending, as more and more consumers feel the effects of higher rates and higher prices. How well company earnings hold up amidst this process will be key for the markets in the coming weeks.
In all, the 10-year US treasury yield ticks lower following the report and equity futures are higher as we head into the market open.
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