Inflation – Shelter and Energy

The Consumer Price Index accelerated by 0.2% m/m in October, pushing the y/y growth rate up to 2.6% from 2.4%. We have been writing about the rising probability that CPI growth would move higher in the fourth quarter as the shelter contribution remained elevated and the comparison set for energy reversed. The October data confirmed that view. Looking ahead, the direction of commodity prices should provide insight into whether that dynamic is likely to continue. If inflation remains above the FOMC inflation target of 2%, the probability of meaningful and consecutive rate cuts would likely come down.

Source: Macrobond

Source: Bloomberg

Moving forward we will continue to track the end-of-month average price for commodities, like Oil, for a gauge on the direction of the energy component of CPI. Through the first nineteen days of November, the setup continues to indicate a continuation of October’s move in terms of a lower contribution to headline inflation.

Source: Macrobond

As the December FOMC meeting gets closer, we will provide updates on the direction of Fed Funds Futures for that meeting and developing trends for 2025 rate cut expectations.

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.