CPI Preview: Markets await inflation read as December Fed meeting hangs in the balance
2min read The October Consumer Price Index (CPI) report, set for release on Wednesday, November 12 at 8:30 a.m. ET, is expected to show a modest rise in inflation. Analysts project a headline CPI increase of 0.2% month-over-month (MoM), resulting in a year-over-year (YoY) increase to 2.6%, up from 2.4% in September. Meanwhile, Core CPI, which excludes food and energy, is anticipated to climb by 0.3% MoM, maintaining its YoY pace at 3.3%. The report will be closely watched to confirm if inflation trends are indeed stabilizing or if sticky inflationary pressures persist.
Overall, this CPI report is expected to be relatively uneventful, with no significant surprises anticipated. However, areas such as shelter costs and transportation services remain key to understanding inflation dynamics. Shelter inflation has shown some moderation in recent months, and a continued softening here would signal that housing costs are aligning with the broader rental market, which could help ease overall inflation pressure. Transportation and medical services are also essential to monitor, as any significant monthly increases could disrupt the report’s anticipated stability.
The “sticky” components of CPI, which include shelter, transportation, and medical services, are crucial because they tend to resist rapid price changes. These sticky items have kept inflation above the Federal Reserve’s target in recent months, maintaining Core CPI at an elevated 3% or more YoY. Analysts note that sticky inflation has stabilized at around 3% over the past year, suggesting a stubborn inflationary baseline despite moderation in more volatile “flexible” CPI components like vehicle prices and travel.
Market participants will also be alert to signs of cooling inflation, especially if the MoM Core CPI print falls to 0.2%, which would be the lowest since summer and could increase the likelihood of a December interest rate cut by the Federal Reserve. However, a stronger-than-expected print, particularly if Core CPI rises above 0.3%, could spark concerns about inflation persistence. This scenario would likely drive up bond yields and pressure equities, potentially leading to a market sell-off as investors reevaluate their inflation outlook.
Beyond the specific CPI numbers, market sentiment remains sensitive to political and economic developments that may influence inflationary pressures. Elevated bond yields, ongoing geopolitical tensions, and discussions about possible trade tariffs could all impact inflation’s trajectory in the months ahead. Meanwhile, the Federal Reserve has signaled that inflation is moderating, but it remains vigilant about any signs of a renewed upward trend, particularly in these sticky inflation components.
In terms of market reactions, a CPI print in line with expectations could support ongoing optimism in the S&P 500 and other indices. However, if Core CPI exceeds 0.3% MoM, we could see heightened volatility, with investors likely rotating back to defensive assets. Conversely, a cooler-than-expected print at or below 0.2% could extend the current rally, fueling gains in growth and technology stocks as bond yields stabilize.
In September, the overall Consumer Price Index (CPI) rose 0.2% month-over-month, bringing the annual increase to 2.4%, while the core CPI, excluding volatile food and energy prices, increased by 0.3%, yielding a 3.3% annual rise. A notable decline in the energy index, down 1.9%, kept the overall CPI lower than the core, a trend likely to continue in October. Food prices grew by 0.4%, with significant increases in meat and fruit/vegetable prices, reflecting recent wholesale cost pressures. However, the overall rise in food prices is expected to moderate in October, with the CPI expected to remain slightly below the core inflation rate.
Key areas like rental and transportation services showed mixed trends. Rental inflation continued to cool, with both rent and owners’ equivalent rent indexes increasing by only 0.3% monthly, leading to a year-over-year rate of 4.8% and 5.2%, respectively—down significantly from peak levels in early 2023. Rising rental vacancies further support continued easing in rent inflation. Medical services rose 0.7% in September, primarily due to hospital costs, although this index is expected to stabilize. In transportation services, airfares surged 3.2% but are anticipated to level off, while car insurance costs, which contribute significantly to CPI growth, saw sustained inflation from weather-related claims and rising repair costs. New and used vehicle prices showed small monthly gains but remain on a broader downward trend, with room for further declines over the coming year as price levels gradually normalize.
