Fundamental Analysis

More Signs of Stabilization in U.S. CPI in October

Typography

Highlights:

  • Year-over-year headline CPI growth edged down from 2.0% from 2.2% in September as part of a surge in September gasoline prices was reversed.
  • Food prices were unchanged on a month-over-month basis, but the year-over-year rate ticked up to 1.3% - its highest reading since November 2015.
  • Excluding food & energy prices, 'core' CPI inched up 0.2% on a month-over-month basis and the year -over-year ticked up to 1.8% after 5 straight 1.7% readings.

The headline year-over-year rate dipped lower to 2.0% but only because gasoline prices partially retraced a hurricane-related 13% surge in September. Energy prices were still up 6.4% from a year ago.

Year-over-year food price growth ticked up to 1.3% - still modest but nonetheless the fastest annual gain for the component since November 2015.

Core CPI increased 0.2% on a month-over-month basis. That was enough to push the year-over-year rate of growth in October up to 1.8% after five straight 1.7% readings. A sharp drop in telecommunication prices earlier this year is still biasing the measure lower. Excluding that drop, core price growth would be right at the Fed's 2% inflation objective. There is still little evidence that inflation is getting out of hand but the stabilization in core measures in recent months and indications that demand growth remains solid - including somewhat stronger-than-expected October retail sales separately reported this morning - should reassure the Fed that price growth will tick higher rather than lower going forward. A 25 basis point hike in the fed funds target range is widely expected in December. We continue expect further demand growth and further tightening in labour markets will ultimately prompt a gradual hiking cycle to continue next year.

Author: RBC Financial GroupWebsite: http://www.rbc.com/
RBC Financial Group
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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