US Oct retail inflation modestly up, may result in fewer interest rate cuts

The consumer price index rose 0.2% for the fourth straight month, the Labor Department said on Wednesday. In the 12 months through October

U.S. consumer prices increased as expected in October, and progress toward bringing inflation down has slowed since mid-year, which could result in fewer interest rate cuts from the Federal Reserve next year.

 

The consumer price index rose 0.2 per cent for the fourth straight month, the Labor Department said on Wednesday. In the 12 months through October, the CPI advanced 2.6 per cent after climbing 2.4 per cent in September. The headline numbers were predicted by economists polled by Reuters. The up-tick in annual inflation also reflects last year's low reading dropping out of the calculation.

CPI excluding food and energy increased 0.3 per cent in October, rising by the same margin for the third consecutive month. In the 12 months through October, the so-called core CPI gained 3.3 per cent. That followed a similar advance in September. 

 

MARKET REACTION: 

STOCKS: U.S. stock index futures turned 0.2 per cent higher, pointing to a steady open on Wall Street

BONDS: The 10-year U.S. Treasury yield fell to 4.378 per cent and the two-year yield fell to 4.273 per cent FOREX: The dollar index softened more, off 0.2 per cent and the euro was up 0.16 per cent, a bit firmer. 

COMMENTS: 

ELLEN ZENTNER, CHIEF ECONOMIC STRATEGIST, MORGAN STANLEY WEALTH MANAGEMENT, NEW YORK 

“No surprises from the CPI, so for now the Fed should be on course to cut rates again in December. Next year is a different story, though, given the uncertainty surrounding potential tariffs and other Trump administration policies. The markets are already weighing the possibility that the Fed will cut fewer times in 2025 than previously thought, and that they may hit the pause button as early as January.” ROSS MAYFIELD, INVESTMENT STRATEGIST, BAIRD, KENTUCKY "The risk was that the inflation data would come in high and the Fed would have to reconsider its cut cycle and the market is already on edge about the inflationary possibilities for 2025, under a new administration. So the fact that it came in-line, gives markets a chance to breathe and focus on the other things that have been moving it lately. Any inflation surprise to the upside will kind of throw off the prevailing narrative in markets, which is that the Fed will continue cutting and that's a positive for risk assets." BEN VASKE, SENIOR INVESTMENT STRATEGIST, ORION PORTFOLIO SOLITIONS, OMAHA, NEBRASKA 

''The latest CPI data matched expectations, showing a year-over-year increase of 2.6 per cent. Inflationary pressures have persisted in key categories like shelter, transportation, and electricity, while the most significant relief has come from lower oil and gas prices. Discussions around 'reflation' have resurfaced and expected to continue going forward, driven by anticipation of Trump’s proposed economic policies. However, futures are currently pricing in a roughly 60 per cent probability of another rate cut in December, following the cumulative 75 basis points of cuts at the last two FOMC meetings.'' 

MATT BUSH, US ECONOMIST, GUGGENHEIM INVESTMENTS, NEW YORK "There's really nothing here that would tell you inflation is re-accelerating or picking back up. And so the market is reflecting that sigh of relief that inflation if nothing else is holding steady, if not ticking down a little bit month over month. 

"Once you get up near 4.4 per cent or 4.5 per cent (on the 10-year Treasury yield), you start to see more buyers come in. As you push more into the high fours, that's when you start to really see impacts on the broader economy if those rates are sustained.

We think going forward yields will kind of stay in this range of four to four-and-three quarters at least for the next several months. 

"A good portion of the move higher in yields reflects continued economic resilience and strength and the view that the Fed doesn't need to reduce rates as much as previously thought to support what the summer looked like - a slowing economy.

Recent data showed some stabilization and economic growth, so it is sustainable. There's a lot of uncertainty though around that view particularly given the potential for policy changes post-election So the market right now is making a lot of assumptions and what the policy mix will look like but nobody really knows where things will stand a year or two from now." 

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT 

"The fact that CPI came in as expected relieved some concerns the market had going into the report. You're seeing Treasury yields move down, which is positive and helping stock futures." 

"The in-line number is allowing the market to breathe a little easier and to focus more on the positives of less regulation, a potential increase in business." "I don't think this report has any bearing on the December FOMC meeting and that's what the market is reacting to as well. Right now, we're on the glide path to another rate cut. 

It could get disrupted but right now it looks like we could get another rate cut." 

SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT (by email) 

"Given nervousness around the more inflationary aspects of Trump’s policy proposals, markets appeared primed for an upside inflation surprise today. A hotter-than-expected inflation number could have convinced the Fed to stand pat at its next meeting so the in-line number can almost be considered as a beat. A December cut is still in the cards. 

"Yet, with policymakers already so cautious about the risk of renewed price pressures, particularly amidst the continued strength of the U.S. economy and the potential Trump policy agenda, the Fed will need to tread a cautious path. The rising likelihood is that, come early 2025, rather than reducing policy rates at each meeting, the Fed is likely to slow its cutting pace to every other meeting." 

QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA (by email) 

"The CPI coming in as expected across all components triggered a sigh of relief from Treasuries as the ten-year yield inched lower. 

"Equity futures edged higher, but with the equity market extended following days of strong performance, the focus was on Treasury yields as concerns over still stubborn inflation has dominated headlines. 

"Still, the 2.6 per cent year-over-year print, while expected, may keep the Fed mindful from declaring victory over its campaign to quell inflation." 

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN 

"The numbers came in consistent with expectations, but under the hood there are signs of further improvement ahead. Durable goods prices are down 2.5 per cent year-over-year. Nondurables are down 0.5 per cent. Services inflation is still significantly positive, but it’s not accelerating any more. The inflation risks on the horizon from possible tariffs, deficits, or immigration changes are nebulous and uncertain enough to not be a major worry until we get more details about what might happen."