VOT Research Report
Market Analytics and Considerations
October The monthly increase in U.S. inflation is 0.4%, while the annual increase is 7.7%. The leading print was projected by analysts to come in at 0.6% month-over-month and 8.0% year-over-year.
Seasonally adjusted, the core CPI increases by 0.3%, taking the annualized rate to 6.3%, which is two tenths of a percent lower than anticipated.
The Fed may lower the pace of interest rate rises if inflationary pressures weaken.
Market response
The U.S. dollar, as evaluated by the DXY index, instantly took a significant shift to the south when the October CPI numbers were released, falling more than 1.4% as a result of a sharp decline in U.S. Treasury yields. In order to avoid overtightening at a time when recession risks are still high, the Fed may adopt a less aggressive attitude and limit the rate of increases in interest rates as early as the next gathering. This suggests that a 50 bp increase rather than a 75 bp change could be implemented in December.
According to a report issued this morning by the Bureau of Labor Statistics, U.S. inflation remained high last month but showed flimsy signs of moderation. This is good news for the Federal Reserve, which has been trying to restore price stability since beginning the most assertive stiffening initiative that since 1980s.
According to the most recent data set released this morning, the consumer price index, which calculates the average price Americans pay for a sample of goods and services, increased 0.4% on a seasonal adjusted basis, lowering the annual rate from 8.2% in September to 7.7%. Bloomberg polled economists, and their predictions for the headline report were 0.6% month over month and 8.0% year over year.
OCTOBER INFLATION FIGURES
Glancing at the monthly analysis, increases in the all-items index were mostly caused by increases in the prices of energy, food, and housing. Each of these line items saw an increase of 1.8%, 0.6%, 0.7%, and 0.8%. The expenses of medical care and used cars, which reduced 2.4% and 0.6%, respectively, during the relevant period, largely offset these gains.
The so-called core CPI, which excludes volatile items such as food and energy and is supposed to represent extended trends in the economy, increased by 0.4% month over month as a result of high rental inflation. This indicator decreased from 6.5% to 6.3% from a year ago, two tenths of a percentage under expectations, indicating that underlying price pressures are beginning to ease more quickly than anticipated.
Source: U.S. Bureau of Labor Statistics
CONSEQUENCES FOR FED POLITICS AND THE US DOLLAR
By law, the Fed is required to bring inflation down to its 2% target, but the change rate is four times greater. The finer details of today’s report, however, verify that inflationary pressures are showcasing some flimsy signs of moderating, an encouraging development that may give the Fed cover to slow the pace of interest rate increases to assess the effects of accumulated toughening on the economy, in in line with recent guidelines.
This suggests that after hiking borrowing prices by 75 bp at their previous four sessions, officials may opt for a half-point increase at their December meeting. In light of this, the FOMC terminal rate estimates may stop rising, giving US Treasury rates a gentle limit. The appropriate circumstances could be set up as a result for the dollar to weaken in the short term
