Consumer prices in the US rose less than expected last month, this week’s marquee macro release showed.
The core price gauge posted a 0.2% MoM increase, cooler than the 0.3% consensus expected.
The headline, all-items index was unchanged in October from September.
Plainly, the downside surprise was a welcome development. There’s tension between the market’s assumption that the Fed is done raising rates and the Committee’s insistence that another hike is still very much on the table in the event the data suggests further tightening is necessary.
The details of the October report showed the energy gauge fell 2.5% MoM, with a 5% drop on the gasoline index offsetting increases in other energy components.
The food at home gauge (so, groceries) increased 0.3%, the briskest month-to-month rate since July. But, notably, the YoY rate is now just 2.1%. It peaked at a not-at-all-wholesome 13.5% in August of 2022.
The electricity gauge rose 2.4% on a YoY basis last month. The high for that index, also reached in August of last year, was 15.8%.
These prints come with the usual caveat: The price of Pop-Tarts, Pepsi and powdered donuts needs to actually fall in order for the standard American diet to reset to pre-pandemic levels. That isn’t going to happen. The price of obesity is permanently higher. When taken in conjunction with record home prices and onerous mortgage rates, the American dream of eating yourself to death on a small piece of property you’ll own outright in just 30 years, is drifting further and further out of reach.
Speaking of expensive roofs, although the CPI shelter gauge rose just 0.3% in October, MoM gains for rent and OER were hotter, at 0.5% and 0.4%, respectively. The latter was much cooler than September’s MoM increase, though.
Remember: Home prices are rising again on a YoY basis. Although various timely measures of rent suggest shelter inflation has further to fall, the simple figure above is at least worth highlighting as a possible risk factor looking out six months or so.
Elsewhere in Tuesday’s CPI report, apparel prices barely rose (0.1% MoM), used vehicle prices spent a fifth month in deflation (prices fell more than 7% YoY) and hotel costs fell, as did airline fares.
The YoY headline CPI print for October was 3.2%. Core prices rose 4% from a year ago, less than the 4.1% economists expected.
As for the supercore measures, core services ex-shelter rose 0.34%, cooler than September’s 0.46% pace. Core services ex-rent/OER rose 0.22%, just a third of the prior month’s gain.
When taken with the softer jobs report and misses on both ISM gauges for October, you can forget about a December Fed hike. It’s off the table. I suppose it’s possible that a blockbuster November NFP report accompanied by some kind of multi-standard deviation upside AHE surprise could put next month’s FOMC meeting back in play, but that’s far-fetched.
“This print was good news for the Fed and offers evidence that monetary policy is still effective and impacts the real economy with a lag,” BMO’s Ian Lyngen said. “The fundamental things apparently still apply.”