Credit Ágricole: US CPI
Looking at the details, it is hard to place the blame on volatile components this month, as could be done (at least in part) over the past couple of months when we had seen some noise involved in the strength. Thus, we see the October report as a genuinely firm one. Core goods did come in a bit below our expectations at 0.16% MoM SA vs our take of 0.25% MoM SA, though this was in large part due to weaker used cars, so possible noise on the downside in this case. Services, by contrast, came in higher than expected at 0.34% MoM SA vs our take of 0.25% MoM SA, with a much more limited contribution from volatile components than the past couple of months. Looking ahead, we will of course fine-tune our forecasts as usual, but for now we see headline remaining below what we expect to represent a peak in May, hovering in the mid-3% YoY range through Q127, with core in a relatively narrow 2.7-2.9% YoY band through Q127 before seeing some modest improvement later in 2027. For the Fed, we had previously argued that consecutive hikes would have been a better approach than an every-other-meeting pace, and today’s data raises the question as to why the Fed did not just hike in October. Given tha
Looking at the details, it is hard to place the blame on volatile components this month, as could be done (at least in part) over the past couple of months when we had seen some noise involved in the strength. Thus, we see the October report as a genuinely firm one. Core goods did come in a bit below our expectations at 0.16% MoM SA vs our take of 0.25% MoM SA, though this was in large part due to weaker used cars, so possible noise on the downside in this case. Services, by contrast, came in higher than expected at 0.34% MoM SA vs our take of 0.25% MoM SA, with a much more limited contribution from volatile components than the past couple of months.
Looking ahead, we will of course fine-tune our forecasts as usual, but for now we see headline remaining below what we expect to represent a peak in May, hovering in the mid-3% YoY range through Q127, with core in a relatively narrow 2.7-2.9% YoY band through Q127 before seeing some modest improvement later in 2027. For the Fed, we had previously argued that consecutive hikes would have been a better approach than an every-other-meeting pace, and today’s data raises the question as to why the Fed did not just hike in October.
Given that it did not, however, the upside surprise in October CPI on top of the firm September report should basically lock in a hike at the December meeting, where we maintain our base case of a 25bp hike. Governor Christopher Waller’s comments earlier this morning would even raise the possibility of a 50bp move, though we are not quite sure today’s data will reach the bar for a jumbo hike from the broader Committee.
Still, we will keep an eye on upcoming Fedspeak for signs that any other Committee members could be open to a jumbo hike, and we see a possibility that the Fed could opt to deliver consecutive hikes in December and January rather than our current base case of December and March.