What’s going on here?

The US core inflation rate held at 0.3% monthly in October, maintaining a steady 3.3% increase over the past year. This stability has fueled expectations for a potential Federal Reserve rate cut in December, as markets react positively to the absence of any inflation surprises.

What does this mean?

Core inflation saw persistent pressures in October, with a notable 2.7% climb in used car prices marking the second month of rising core goods prices. Yet, the Manheim Index hints at future declines in auto prices. Core services inflation, however, remains robust at a 4.5% annualized rate over three months, driven by high owners’ equivalent rent. Shelter inflation might gradually ease alongside market rents, but core services prices continue to be volatile. The Consumer Price Index (CPI) trends suggest a mild 0.23% month-over-month rise in core Personal Consumption Expenditures (PCE), pending further insights from the Producer Price Index (PPI). The financial markets responded buoyantly, rallying on the CPI data and betting at an 80% probability on a 25 basis points cut in the upcoming Fed meeting.

Why should I care?

For markets: Betting on a rate cut.

The prospect of a Fed rate cut is energizing investors, with interest rate markets pricing in a high likelihood of reduced rates at the next meeting. This potential adjustment could lift various sectors, encouraging growth as borrowing costs drop.

The bigger picture: Inflation trajectory offers hope.

The steady trajectory of US inflation suggests controlled economic pressures, presenting a hopeful outlook for both businesses and consumers. This environment could stabilize economic growth while maintaining purchasing power, aligning well with expectations of monetary policy easing.