MNI 5 THINGS: US October Core CPI To Rise 0.2%; No Risk

     WASHINGTON (MNI) - The Consumer Price Index will be released Wednesday, and

analysts are expecting overall CPI to rise 0.3% and core CPI to rise 0.2% in

October.

     Ahead of the release, we outline five themes for particular attention.

--HEADLINE CPI USUALLY WELL-FORECASTED

     This month, analysts are expecting a 0.3% increase in the headline CPI

value. Based on their forecast history for October, they tend to be very

accurate. In the last 20 years, analysts have been on target 11 times,

overestimated five times, and underestimated four times. When they have

overestimated, it is by an average of 0.14pp and when they have underestimated,

it is by an average of 0.15pp, suggesting that a miss to either the high or low

side this month would be by relatively the same amount and likely below 0.2pp.

Within the last ten years, analysts have shown more of a tendency to

overestimate, having done so four times by an average of 0.13pp, than

underestimate, having done so twice by an average of 0.10pp. They have been on

target four times in the last ten years, including each of the last three years.

This suggests the October headline reading could be right on target.

--CORE CPI UNLIKELY TO SURPRISE

     Analysts also tend to be accurate in their forecast for core CPI. In the

last 20 years, they have been on target ten times, overestimated four times, and

underestimated 6 times, suggesting a very slight upside risk if anything. Their

overestimates average 0.13pp and their underestimates average 0.10pp. Over the

last ten years, analysts have been on target four times, underestimated three

times by an average of 0.13pp and underestimated three times by an average of

0.10pp. This indicates that they are likely to be on target for this month's

core prices and there is no risk to their estimate for a 0.2% increase.

--MARKET, ANALYSTS DIVERGE

     Markets are expecting CPI to rise by 0.2% in October while analysts are

expecting a stronger 0.3% gain. Since October 2017, markets have missed eight

times, overestimating six times by an average of 0.18pp, and underestimating

twice by an average of 0.20pp. Comparatively, analysts have missed six times

total, with five overestimates averaging 0.10pp and one underestimate averaging

0.20pp. Since markets have been on target four times while analysts have been on

target six times, their absolute average miss in the last year, at 0.13pp, is

much higher than analysts' 0.06pp absolute average miss. Still, both markets and

analysts have been accurate much of time. While only one can be right this

month, it stands to reason that one that misses won't be very far off.

--PPI UPSIDE RISK

     On Friday, the Bureau of Labor Statistics released the monthly Producer

Price Index report, which contains a measure of prices received by producers for

goods and services for personal consumption. The measure posted a

month-over-month gain of 0.8% after a flat reading and a soft gain in the prior

two months, respectively. Although the correlation between the CPI and Personal

Consumption PPI is not particularly strong, they do tend to rise together when a

large, sudden increase like the one observed in October occurs. The core

Personal Consumption PPI was up 0.6% month-over-month, further pointing towards

possible upside risk for October CPI.

--RETAIL GAS PRICE REBOUND

     In September, the CPI for energy posted a modest decline of 0.5%

month-over-month. Seasonally unadjusted data from the Automobile Association of

America suggest a rebound in October is possible. The data show that early in

October, retail gas prices edged slightly higher by 7 cents from a month earlier

after month/month declines in the previous three months. The prospect of a

rebound emerging in the most recent data, combined with the fact that Hurricane

Michael made landfall in early October, gives weight to the prospect of higher

than average headline inflation for October.

--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com

--MNI Washington Bureau; +1 202-371-2121; email: shikha.dave@marketnews.com

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

[TOPICS: MAUDS$,MAUPR$,M$U$$$]