No huge surprises in today's CPI: headline CPI up 0.2% for the month (2.6% year-over-year) and Core up 0.3% (3.3% year-over-year). underlying inflation is still running close to 2% per annum.
Service sector inflation less Shelter is one metric closely watched by the Fed: the the 6-month annualised rate bumped up slightly in October - rising by 0.3% to 2.4%m, which is pretty normal for a 2% inflation economy. The increase was more dramatic on a 3-month basis, climbing to 4.4% from 3% last month. However, the quarterly change was slightly exaggerated due to base effects in July, when we had particularly weak numbers in Energy services and Medical care services.
For the month, transport services rose 0.4%, down from 1.4% previously. Similarly, medical care services increased 0.4%, compared to 0.7% before. Shelter experienced a slight uptick from 0.2% to 0.4%. Minneapolis Fed President Kashkari reiterated the Fed's view that shelter prices are expected to continue moderating in the future but noted that the Fed lacks the tools to address structural issues in housing supply. Meanwhile, energy services were up 1% for the month.
We don't think these numbers will deter the FOMC from cutting rates another 25 bp in December. But as we move into 2025 it will become increasingly hard tto ignore the potentially inflationary effects of some of Trump's policies. That will create an increasingly high bar for rate cuts, unless the economy slows down sharply.
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