Inflation ticked up slightly on an annual basis in October, the latest evidence that further reductions in inflation are getting hard to achieve.
The Consumer Price Index climbed 2.6% from a year earlier, up from September’s 2.4% annual rate, the Bureau of Labor Statistics reported today. Core inflation, which strips out more volatile food and energy prices, held steady at 3.3% annual rate.
Even the slight uptick in the headline inflation rate didn’t shake the financial markets belief that the Federal Reserve will cut interest rates again at its December meeting. In fact, the report seemed to strengthen that view–perhaps because it removed uncertainty over how big an increase in the inflation rate would be reported today.
Odds of a 25 basis point cut to the fed’s benchmark rate on the CME FedWatch tool climbed to 82.3% today from 58.7% yesterday. That completes a roundtrip in expectations. On October 11 the odds of a 25 basis point cut were 84.4%.
It’s hard for me to see the fundamentals for rate cuts beyond December in these numbers. The core CPI increased at a 0.3% month-to-month rate for a third month. Over the last three months the core CPI rose at a 3.6% annualized rate. That’s the fastest rate of increase since April.
The headline CPI rose 0.2% for a fourth month and the 2.6% annual rate is the first acceleration on an annual basis since March.
Progress on reducing inflation to the Fed’s 2% goal looks to be stalling. Prices for goods are starting to rise again after a year of consistent declines.
