MNI DATA PREVIEW: CPI to Retreat, But Core Infl Could Tick Up

By Holly Stokes and Sara Haire

HIGHLIGHTS:

- October CPI expected to see a 0.1% rise, while core CPI expected to rise 0.2%.

- After September's surge, analysts expect October to see a correction.

     - Analysts expect tame readings for both gasoline and food prices in

October.

- If core CPI sees a considerable rise, the year/year could advance for the

first time since January. 

- Core inflation is expected to start increasing in the coming months, if not in

October

     WASHINGTON (MNI)- Analysts expect October CPI to post a small 0.1% gain in

Wednesday's report, after September and August saw large 0.5% and 0.4% gains,

respectively. 

     Core CPI is expected to post a more healthy 0.2% gain after September's

0.1% rise.

     There is general consensus that October headline CPI is due for some

payback after the past two months benefited from large energy sector

contributions. With gas prices down in October, as Harvey's impact fades, Morgan

Stanley estimates a 1.7% decline in energy - which could translate to a flat

CPI. If CPI comes in at the median forecast of a 0.1% gain, this will translate

to a year/year gain of 2.0%, down two tenths from September.

     Analysts such as BMO also do not expect the food sector to contribute

significantly to the headline number, as Amazon's acquisition of Whole Foods

ignites competition, leading to expectations of a near-flat food price sector.

     While headline CPI is poised to soften, core CPI could inch up and

normalize after a somewhat volatile past two months. If core CPI posts the

forecasted 0.2% gain, this would leave year/year at a 1.7% increase, for the

sixth month in a row.

     Capital Economics expects core consumer prices to see a 0.3% gain, the

survey high. If correct, this would translate to a 1.9% rise year/year - the

first time that the figure has risen since January, and help signal that factors

depressing inflation in the beginning of the year were in fact transitory.

     Analysts expect core CPI to benefit from a rebound in both vehicle and

hotel prices. While Goldman Sachs agrees that the risks are skewed to the

upside, they do caution that promotions from wireless carriers could weigh on

the communications category.

     Looking ahead, analysts believe that core inflation should start picking up

soon. BMO states that if not in October, the annual rate should start rising in

the months to come. And, Deutsche Bank states that while near-term inflation

looks tame, they see an inflection point on inflation on the horizon.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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