What just happened?
Inflation in the US Consumer Price Index (CPI) was in line with expectations in October, offering no unpleasant surprises to operators, but no good news either. Headline and core CPI inflation remained unchanged in October on a monthly basis, registering 0.2% and 0.3% month-on-month, respectively. However, early core CPI inflation accelerated to 2.6% year-on-year from 2.4%.
Why is CPI inflation important?
CPI inflation is a measure of the monthly change in consumer prices of a mixed basket of consumer goods that represents a significant portion of the overall consumer economy. Although the CPI index lacks information on consumer prices for rural residents, measuring only cost changes in urban goods, the CPI index as a broader measure of consumer inflation captures approximately 93% of the population. from USA
Since controlling inflation through interest rates is half of the Fed’s mandate (the other half being stable employment, a unique feature of the Fed not shared by other central banks), CPI inflation It is used by markets as a key method of estimating when the Fed will make changes to the federal funds rate and to what extent. With inflation continuing above the Fed’s target levels, increases in key inflation metrics make it difficult for the Fed to cut rates as quickly or as sharply as investors would like to see.
What happens next?
With CPI inflation tracking within market expectations but offering no significant reductions in price growth, investors will turn to the rest of the economic data agenda for signs of weakness that could prompt the Fed to a faster pace of rate cuts towards the end of the year. Labor market weakness has been flagged as a possible flashpoint for larger-than-expected rate cuts. However, too sharp a drop in employment data or other inflation metrics (such as the personal consumption expenditure price index) could also trigger fears of a widespread recession in the US economy, leaving Investors in a challenging ‘Goldilocks’ position: Markets expect weak spots in the US economy to force the Fed to cut interest rates, but a straight slide into recession will make rate cuts be a moot point.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
