October CPI Data: The Key Points From Today’s Inflation Report

Stock prices leapt higher, with a 1.1% gain in futures on the
S&P 500
shortly after the numbers were disclosed.

On a month-over-month basis, the headline index remained steady. Economists forecasted the pace of inflation would slow to 0.1% from the 0.4% monthly rate recorded in September.

Core prices, which exclude the more volatile food and energy indexes and are generally considered a better gauge of underlying inflation trends, rose 0.2% over the month and hit 4% on a year-over-year basis.

October’s core price growth was the smallest 12-month change since September 2021. Both  core measures beat economists’ expectations that price growth excluding food and energy would remain steady from September’s level of 4.1% year over year and 0.3% on a monthly basis. 

The disinflation in the core measure will come as welcome news to Federal Reserve officials who are tasked with bringing inflation down to a target of 2%. 

The so-called supercore rate, or core services inflation excluding housing, came in at 0.2% for October, down from 0.6% recorded in September. The measure, which the Fed has zeroed in on in recent months as concern about services inflation have deepened, slowed to 3.7% year over year from 3.9% in September.  

Tuesday’s report showing significantly slower inflation came as a bit of a surprise to economists who expected higher reported levels due to residual seasonality and new data that was incorporated as part of the health insurance calculation.

Inflation may have cooled more than expected last month, but the “usual trouble spots”—shelter, motor-vehicle insurance, and personal care—do still remain, wrote Greg McBride, chief financial analyst at Bankrate. He noted that shelter accounted for 70% of the increase in core prices over the past year.

(This is a developing story. Please check back soon for more detail and analysis.)

Consumer price growth likely decelerated in October due to a drop in gasoline prices. But core inflation, which excludes food and energy prices, has proved sticker and likely fell by less. The consumer price index reading for October will be reported on Nov. 14 by the Bureau of Labor Statistics.

The October CPI report is expected to show that the pace of inflation slowed to 3.3% in the month on a year-over-year basis, down from the 3.7% rate recorded in September, according to economists surveyed by FactSet. On a month-over-month basis, economists predict that headline inflation grew by 0.1%, below the 0.4% pace recorded in September. 

Expectations for moderating inflation are based largely on the drop in energy prices in October.
Gasoline prices
fell from ​​an average of $3.96 a gallon nationwide in September to $3.74 last month, according to the Department of Energy. “Given we saw a pretty meaningful decline in gas prices in October, that should drive a pretty weak headline number,” says Matthew Bush, U.S. economist at Guggenheim Investments.

Additionally, recent declines in commodities prices could reduce food-price inflation in Tuesday’s print, writes William Blair’s macro analyst, Richard de Chazal. In particular, the CRB’s Foodstuff index is down almost 10% from its July peak, de Chazal writes. 

Yet, the forecast for October’s inflation rate isn’t entirely sunny. Core CPI, generally considered a better gauge of inflation growth than the headline number, is expected to have held steady in the month, according to FactSet. In September, core CPI measured 4.1% year over year. It ticked up by 0.4% month to month, and economists expect that the growth rate in October was the same.

September’s core CPI readings showed the smallest annual increase in two years. 

Bush said he expects Tuesday’s core reading to be a bit of a “weird one,” noting that some technical factors could push up the inflation rate relative to September. Core CPI might even exceed consensus expectations. 

One of those technical factors is a planned update in the methodology of the calculations used for health insurance costs, which will be implemented starting with the October 2023 indexes, according to the Bureau of Labor Statistics. The agency said it would be smoothing the index to reduce the volatility in the annual data and incorporating semiannual financial data to reduce lag in the available information. 

“It’s pretty likely that’s going to switch [healthcare] from being a drag on inflation to a contributor,” Bush says.

He added that the change likely will cause the so-called supercore rate, or core services inflation excluding housing, to tick up. The supercore is an inflation measure that the Fed has zeroed in on in recent months as concerns about services inflation have deepened. 

Bush also noted that some residual seasonality-adjustment issues that likely pulled down inflation readings over the summer will push up inflation readings this fall.

“Those two factors together aren’t really indicative of the trend in real, true inflation, but could bias [Tuesday’s] numbers up a bit and stoke concerns in the market and the Fed that inflation is getting stickier and harder to bring down,” he said.

Yet even with a steady or rising core inflation reading, the Fed is unlikely to get back into the mode of hiking interest rates, Bush said.

Fed officials’ increasingly cautious tone, paired with the weak October jobs report and continued lags in the tightening effects of monetary policy, likely indicate the Fed has finished hiking rates in the current policy cycle, Bush said.

“Even with a little bit of an upside surprise tomorrow, it would take significantly more evidence to get the Fed to hike in December,” he said. 

The CPI report will be released at 8:30 a.m. ET.

Write to Megan Leonhardt at [email protected]