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MNI US CPI Preview: Core Goods Inflation Back In Focus

The potential for tariffs will put more focus on core goods CPI, with October's already set to mark a 17-month high.
Inflation InsightMarketsStory

EXECUTIVE SUMMARY:

  • Analyst forecasts for October's CPI report (out Wednesday) show a central expectation that sequential inflation will come in relatively steady compared with September.
  • The MNI consensus for core CPI is 0.30% M/M (median) / 0.29% (mean) unrounded, vs 0.31% prior, while headline is seen at 0.20% M/M (median) / 0.21% (mean), vs 0.18% in September. These are in line with BBG consensus medians, and as suggested by the means, there is a slight downside bias to core.
  • Forecasts appear aligned on a fairly sharp pickup in core goods prices (was 0.17% in Sept, est 0.23% in Oct), driven by used cars.
  • The potential for tariffs will put more focus on core goods inflation in the months ahead: its deflationary contributions are already fading, and an outcome in line with consensus would mark a 17-month high.
  • Core services are seen steady at 0.35% (0.36% Sep), with shelter inflation looking very similar to September, and rebounding prices in lodging offset by a pullback in airfare price pressures.
  • In other words, the largest core categories are seen basically unchanged, but the volatile categories are seen reversing prior moves and essentially offsetting each other.
  • We note that there are upside outliers that have differing reasons to expect a core surprise to the high side. On the downside, some analysts pencil in 0.20% M/M core.
  • With the market so focused on future Trump-related inflation risks, and Chair Powell downplaying the importance of any single report (and one more CPI print to follow before the next decision), a below-expected print would help firm December cut pricing, with Powell suggesting that overall recent figures suggest the FOMC is on track to meet its 2% target.
  • Conversely a well above-expected core CPI print would add fuel to concerns that the Fed will take increasing care in dialling back restriction going into 2025, potentially dropping cut probability by 10% to a little closer to a coin flip (ie to 15bp for Dec 2025 pricing), but also impacting pricing further out.

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EXECUTIVE SUMMARY:

  • Analyst forecasts for October's CPI report (out Wednesday) show a central expectation that sequential inflation will come in relatively steady compared with September.
  • The MNI consensus for core CPI is 0.30% M/M (median) / 0.29% (mean) unrounded, vs 0.31% prior, while headline is seen at 0.20% M/M (median) / 0.21% (mean), vs 0.18% in September. These are in line with BBG consensus medians, and as suggested by the means, there is a slight downside bias to core.
  • Forecasts appear aligned on a fairly sharp pickup in core goods prices (was 0.17% in Sept, est 0.23% in Oct), driven by used cars.
  • The potential for tariffs will put more focus on core goods inflation in the months ahead: its deflationary contributions are already fading, and an outcome in line with consensus would mark a 17-month high.
  • Core services are seen steady at 0.35% (0.36% Sep), with shelter inflation looking very similar to September, and rebounding prices in lodging offset by a pullback in airfare price pressures.
  • In other words, the largest core categories are seen basically unchanged, but the volatile categories are seen reversing prior moves and essentially offsetting each other.
  • We note that there are upside outliers that have differing reasons to expect a core surprise to the high side. On the downside, some analysts pencil in 0.20% M/M core.
  • With the market so focused on future Trump-related inflation risks, and Chair Powell downplaying the importance of any single report (and one more CPI print to follow before the next decision), a below-expected print would help firm December cut pricing, with Powell suggesting that overall recent figures suggest the FOMC is on track to meet its 2% target.
  • Conversely a well above-expected core CPI print would add fuel to concerns that the Fed will take increasing care in dialling back restriction going into 2025, potentially dropping cut probability by 10% to a little closer to a coin flip (ie to 15bp for Dec 2025 pricing), but also impacting pricing further out.

PLEASE FIND THE FULL REPORT HERE

Keep reading...Show less