October-24 U.S. CPI Inflation Report
Still persistently high Core Inflation
Key takeaways:
The overall Consumer Price Index (CPI, n.s.a.) increased by 2.6% year-on-year (YoY) (n.s.a) in October, in line with the consensus expectation of 2.6% YoY and above the September reading of a 2.4% YoY increase.
Core CPI in October was 3.3% YoY (n.s.a.), the same rate as September’s reading of 3.3% YoY and the consensus forecast at 3.3% YoY.
Inflationary pressures are primarily concentrated in the core service sector with an increase of 4.8 % YoY, slightly higher than the 4.7% (YoY) observed in September. In contrast, the goods sector is experiencing deflation with a decrease of 1% YoY, the same decrease as in September.
The primary factor behind recent inflationary pressures is still the shelter component of the Consumer Price Index (CPI). Shelter increased by 4.9% YoY in October the same rate as in September. The month-on-month increase was 0.3%, slightly above September’s 0.2% MoM.
The current reading is consistent with a slow benign disinflationary process but progress towards the 2% target is progressing slowly, mainly due to core service inflation. While the current release is consistent with the continuation of the easing cycle (at a slow pace), there is the possibility that core inflation might have reached a plateau stabilizing around 3%.
Related Posts (with links)
U.S. September-24 CPI Inflation Report (Previous Release)
US August-24 CPI Inflation Report (Previous Release)
US July-24 CPI Inflation Report (previous release)
US June-24 CPI Inflation Report (previous release);
US May-24 CPI Inflation Report (previous release);
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Review of the Inflation Release
The Consumer Price Index (CPI) rose by 2.6% (n.s.a.) year-on-year in October (Chart 1), which is in line with the market consensus (2.6% YoY) and above September’s figure of 2.4% YoY. On a month-on-month basis, there was an increase of 0.1% MoM (n.s.a.), below the market consensus of 0.2% and September’s figure of 0.2%.
Core CPI (excluding food and energy) increased by 3.3% year-on-year (Chart 1), in line with the market consensus of 3.3% YoY and September’s figure of 3.3% YoY. On a month-on-month basis, core CPI rose by 0.2%, below the 0.3% increase recorded in September and the consensus forecast of 0.3% MoM.
Core services (services excluding energy) remain the primary driver of inflationary pressures. In October, core services increased by 4.8% YoY (above the 4.7% YoY recorded in September), while core goods (goods excluding energy) experienced another decline, by 1% YoY (the same rate as the 1% YoY decline recorded in September). The current release confirms that core CPI inflation is adjusting slowly, largely due to the gradual adjustment of core services.
The following chart (Chart 2) illustrates this dichotomy between core goods and core services:
The CPI in October was primarily driven by the housing component (Tables 1 and 2). The overall shelter component rose by 4.9% year-on-year in October, the same rate as in September. Noticeably, on a month-on-month basis, the shelter component increased by 0.3%, higher than the previous reading of 0.2% recorded in September.
Supercore services (core services excluding shelter – Chart 3) increased by 4.5% year-on-year, rising slightly above the 4.4% increase in September. On a monthly basis, the supercore component has increased by 0.3% MoM lower than the 0.5% MoM observed in September.
Core services (excluding energy) prices increased by 4.8% year-on-year in October, higher than the 4.7% YoY recorded in September. On a month-on-month basis, core services increased by 0.3%, the same increase as in September.
Core goods (excluding food and energy) prices continued their deflationary trend, declining by 1% year-on-year in October, the same decline as in September. On a month-on-month basis, core goods decreased by 0.3% in October, lower than the 0.4% MoM rise in September and the flat reading of 0% MoM in August.
The Bureau also published the Harmonized Index of Consumer Prices (HICP), following the ECB’s methodology. According to the BLS: “The HICP differs from the U.S. Consumer Price Index (CPI) in two major respects. First, the HICP includes the rural population in its scope. Second, and probably more importantly, the HICP excludes owner-occupied housing”.
Chart 5 reveals that by excluding the owner-occupier rent component from the CPI, the inflation rate has ticked higher, at 1.9% in October compared to 1.6% (n.s.a.) year-on-year in September 2024.
Summary
The overall pattern of inflation has given confidence to the Fed in the disinflationary process towards the 2% as they started the easing cycle in September 2024 and continued it with a 25bps cut in November. The latest reports confirm the slow adjustment in core inflation both on a year-on-year and a month-to-month basis, especially within the core services sector. Core inflation seems to have stabilized above 3% and the slow adjustment in core service and the shelter component of inflation are contributing to its stubbornness. The current release per se should not change the Fed's outlook and is consistent with a gradual continuation of the easing cycle.
Table 1: CPI by components (% YoY)
Source: Bureau of Labor Statistics (BLS)
Table 2: CPI by components (% MoM)
Source: Bureau of Labor Statistics (BLS)