The economy was a priority for voters in the midterm elections, exit polls showed, adding even more weight to a much-anticipated inflation report due out on Thursday.
The October consumer price index, which measures the change in the price of everything from pork ribs plane tickets, will provide the latest information on whether Americans saw relief from the current spike in historically high prices last month.
Economists say the pace of inflation likely slowed somewhat in October – but nowhere near enough for the Federal Reserve to rein in the aggressive rate hikes it has deployed in its battle to cool the economy.
“We’re definitely not there yet,” said Stephen Juneau, US economist for Bank of America Securities. “I don’t think this report will do much to allay the worries of the ordinary person.”
Consensus estimates on Refinitiv put annual inflation at 8% in October, which would be a slower pace of increase than the 8.2% seen in September and the smallest year-over-year increase since February .
However, the rise in energy prices probably pushed up monthly inflation by 0.6%.
Core CPI, which does not include the volatile food and energy categories, is expected to have fallen to a growth rate of 6.5% for the 12 months to October, from 6.6% a month earlier.
That’s partly due to improving supply chains, but also a weaker housing sector, which has led to lower demand for appliances and other goods, Juneau said.
Additionally, the latest inflation numbers could benefit from the way the Bureau of Labor Statistics tabulates the index. To calculate prices for medical services, the agency uses the retained earnings or profit margins of health insurance providers. These data are published once a year and with a lag. Over the past 12 months, the medical services category has mirrored the strong profit margins of 2020, when people stayed home or delayed doctor visits – but that will rebalance in the October report, which will reflect the return in 2021 of elective surgery and other health services, Juneau says.
The CPI has turned hot over the past two months, showing that overall price increases have only eased slightly over the respective 12-month periods, and core CPI has risen much faster than expected.
Housing remained a driver of inflation, but the surge in core CPI was a reflection of a potentially tricky issue: inflation took hold more deeply in service industries.
Unlike goods, where inflationary inputs include supply chains and commodity prices, the primary input to service industries is the cost of labor.
“If you continue to pay higher labor costs, you have to find a way to pass them on to the consumer,” Juneau said.
And the country’s labor market still remains historically tight, which could continue to put upward pressure on wages.
Much more needs to be given to the labor market to reduce inflation, said Steven Ricchiuto, chief US economist for Mizuho Securities USA.
It hasn’t happened yet.
Earlier this month, data from the Job Vacancies and Labor Turnover Survey showed job vacancies rose unexpectedly in September, a month after falling nearly a million. The latest jobs report also beat expectations, but the 261,000 jobs added in October was the lowest monthly total since December 2020.
And while there has been a wave of mass layoffs announced in recent weeks, continued demand for workers means people aren’t staying on unemployment rolls for long, Ricchiuto said.
Despite all of this, there is still a chance that the CPI could surprise on the upside again – meaning the Fed will have to stay the course, he added.
“I think that leaves open [a fifth-consecutive rate hike of] 75 basis points in December,” he said.
The October Consumer Price Index will be released Thursday at 8:30 a.m. ET.
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