US inflation stays firm for third month with 0.3% core CPI gain

US inflation remained firm in October, underscoring the ongoing risks Federal Reserve officials face in trying to bring price pressures fully under control. The so-called core consumer price index — which excludes food and energy costs — increased 0.3% for a third month, Bureau of Labor Statistics figures showed Wednesday. Over the last three months it rose at a 3.6% annualized rate, marking the fastest pace since April, according to Bloomberg calculations. Economists see the core gauge as a better indicator of the inflation trend than the overall CPI. The headline measure rose 0.2% for a fourth month and 2.6% from a year before, marking the first acceleration on an annual basis since March. The BLS said shelter accounted for over half of the overall monthly advance. [caption id="attachment_58346401" align="alignnone" width="684"] Bloomberg[/caption] The figures underscore the slow and frustrating nature of the battle against inflation, which has often moved sideways — sometimes for months at a time — on its broader path down. Progress may now be stalling as goods prices are starting to rise after a year of consistent declines and housing costs remain firm. A slight drop in car insurance costs was only the second decline since the start of 2022, giving consumers little relief. The latest numbers, along with strong consumer spending and economic growth, will keep Fed officials cautious as they debate how quickly to reduce borrowing costs in the months to come. While the labor market is cooling, a retreat in inflation has been key to policymakers’ rationale for cutting interest rates. [caption id="attachment_58346402" align="alignnone" width="800"] Bloomberg[/caption] “The inflation data over the past few months have not shown much additional progress, and the election outcome has raised new questions about the path ahead for price growth,” Wells Fargo & Co. economists Sarah House and Michael Pugliese said in a note. “As a result, we think the time is fast approaching when the FOMC will signal that the pace of rate cuts will slow further, perhaps to an every-other-meeting pace starting in 2025,” they said, referring to the central bank’s Federal Open Market Committee that sets monetary policy. The Fed will also have to contend with a new set of policies under President-elect Donald Trump, with companies already considering raising prices in anticipation of the higher tariffs he’s promised on imported goods. After cutting interest rates by a quarter point last week, Chair Jerome Powell said the election will have “no effects” on its decisions in the near term because it’s too early to know the timing or substance of any potential fiscal policy changes. Metric Actual Estimate CPI MoM +0.2% +0.2% Core CPI MoM +0.3% +0.3% CPI YoY +2.6% +2.6% Core CPI YoY +3.3% +3.3% Minneapolis Fed President Neel Kashkari said that based on the headline numbers, he’s confident inflation “is headed in the right direction.” He spoke on Bloomberg TV just minutes after the release, emphasizing he hadn’t yet been able to look at the data in detail. The S&P 500 opened higher while Treasury yields fell. Traders marked up the odds of a December rate cut to around 70%, from about 60% prior to the release. Prices of used cars rose 2.7%, the most in over a year, and hotel rates climbed 0.4%, possibly reflecting damage and evacuation orders from Hurricanes Helene and Milton. Airfares continued to rise, and health insurance costs jumped 0.5% as the BLS updated source data on premiums. Apparel prices fell by the most since the onset of the pandemic. Shelter prices, the largest category within services, increased 0.4%, marking an acceleration from the prior month. Owners’ equivalent rent — a subset of shelter and the biggest individual component of the CPI — rose by the same amount. Excluding housing and energy, service prices rose 0.3%, less than in September, according to Bloomberg calculations. While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index. That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI does, which is one reason why it’s trending closer to the Fed’s 2% target. Goods prices excluding food and energy, meanwhile, rose for a second month. They had consistently fallen over much of the past year. However, excluding used cars, core goods prices fell 0.2%, marking the largest drop in 2024. What Bloomberg Economics Says... “Outside of cars, however, goods disinflation remains broad-based, with no signs that front running of business activity ahead of potential new tariffs has boosted inflation. October’s CPI report contains no information that would discourage the FOMC from cutting rates again at the December meeting.” — Anna Wong and Stuart Paul. To read the full note, click here The PCE measure draws from the CPI as well as certain categories within the producer price index, which is due Thursday. Several of the CPI items that registered robust gains, like health insurance and airfares, won’t feed through to the PCE, which should help keep that gauge relatively muted when the data are released later this month. Policymakers also pay close attention to wage growth, as it can help inform expectations for consumer spending — the main engine of the economy. A separate report Wednesday that combines the inflation figures with recent wage data showed real earnings grew 1.4% from a year ago, the same as in September. For many Americans, wage growth hasn’t kept pace with inflation in recent years, and frustration about the economy was a major factor in Trump’s decisive election victory. In an ABC News exit poll, 45% of people said they’ve become worse off under the current administration — a record high surpassing even the levels of the 2008 financial crisis. Some measures of inflation expectations also remain somewhat elevated among consumers and businesses, a potentially worrisome sign after years of robust price pressures. -- By Molly Smith (Bloomberg)

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