US inflation likely remained stubbornly high last month despite efforts by the Federal Reserve to rein in prices which surged at a historic pace.
The Bureau of Labor Statistics’ Consumer Price Index (CPI) for October is scheduled for release at 8:30 a.m. ET Thursday. Economists polled by Bloomberg had expected the headline reading to show an accelerated monthly increase of 0.6% from 0.4% in September, in part due to the first jump in energy prices in four months.
The broader measure is expected to have moderated to a 7.9% year-on-year increase, down slightly from the 8.2% year-on-year increase in September. Core CPI, which excludes the volatile food and energy components from the measure, is expected to come in at 0.5% on a monthly basis and 6.5% on the year, little change from 0.6% and 6 .6%, respectively, last month – the highest base impressions since 1982.
The Federal Reserve is watching “core” inflation more closely, which gives policymakers a more focused look at inputs like housing. The headline CPI, on the other hand, has largely moved in conjunction with erratic energy prices this year.
Bank of America (BofA) economists predict housing will once again be the main driver of the October core reading as housing costs make up nearly a third of the consumer price inflation basket .
Transportation services are expected to remain strong due to higher air fares and car and truck rental prices, while medical care costs may have fallen, BofA noted.
Thursday’s data will offer investors clues as to how Fed officials will continue their fight to restore price stability after raising interest rates by 75 basis points for the fourth straight time earlier this month. Investors are currently pricing in a decline from the magnitude of the December rally to a smaller 0.50% increase.
“It is not just the continued pace of increase that is troublesome, but the pervasiveness of soaring prices across various spending categories that has dogged household budgets,” wrote Chief Financial Analyst Greg McBride. from Bankrate, in a note. “Despite half a dozen interest rate hikes by the Federal Reserve, any widespread, significant, and sustained easing of inflationary pressures remains elusive.”
Moderating economic data raised hopes that the US central bank will reverse its aggressive policy, but Fed Chairman Jerome Powell stressed earlier this month that no pause plan was in the works, wrecking such optimism.
“Restoring price stability will likely require tight policy to continue for some time,” Powell said in prepared remarks after last week’s policy meeting, adding later that officials had ” a long way to go,” with still-high payrolls and inflation readings. which did not cool quickly enough.
Federal Reserve officials have repeatedly signaled that the size and breadth of the hikes could slow despite the fact that the fight against inflation is far from over, fueling the possibility of a higher-than-expected hike. of its key interest rate.
A flurry of Wall Street strategists have raised their bets on how much the central bank will eventually raise its federal interest rate — and October’s CPI reading could confirm revised estimates.
Goldman Sachs was the first among the big banks in the days leading up to November’s FOMC meeting to warn that rates could rise as high as 5% by March 2023.
After Friday’s better-than-expected jobs report, Bank of America economists revised their projections up to a terminal rate of 5.0-5.25% from 4.75-5.0% and said the institution was planning a 0.50% increase for December.
TD Securities raised its terminal rate forecast from a range of 4.75% to 5.00% to 5.25% to 5.50% and expects a 50 basis point hike at the next meeting of the 13 and December 14. BNP Paribas expects a fifth hike of 75 basis points next month and a final federal funds level of 5.25% in the first quarter of next year.
“We believe the risks to our revised FOMC rate path continue to be on the upside and the upcoming CPI inflation printouts and November jobs report will weigh heavily on the near term path. term of Fed policy,” the strategists led by Michael Gapen wrote in a Friday. Remark.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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