Summary
October’s softer-than-expected CPI print is an encouraging development for the FOMC and reinforces our view that the FOMC has ended its hiking cycle. However, we do not see the latest data as a game-changer for inflation’s path ahead. With inflation in October held down by volatile components like gasoline, travel services and autos, we expect inflation’s return to 2% will continue to be a slow grind.
Inflation Reprieve
The consumer price index was unchanged in October, the first time monthly inflation was flat since July 2022. Gasoline prices fell 5.0% in October, more than reversing the 2.1% increase that occurred in September. Energy services prices rose 0.5% in the month, and food prices increased 0.3% in October. Compared to one year ago, the headline CPI has increased 3.2%. Excluding food and energy, consumer prices rose 0.2% in October. Core goods prices fell 0.1% in October, and core services rose 0.3%.
Focus To Turn from Future Rate Hikes to Future Rate Cuts
Today’s CPI report further reinforces our view that the last rate hike of this tightening cycle is behind us. Inflation is not yet back to 2%, and the Committee likely will need to feel confident that 2% inflation can be sustained before it begins to loosen its restrictive stance of monetary policy. As 2023 draws to a close and 2024 comes into view, we suspect the debate next year will focus squarely on when rate cuts and the end of quantitative tightening will occur.
