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Overall Inflation Continues Down But Core Rises Over Previous Month

The Consumer Price Index report is out and at the headline level alone — 0.2% monthly on a seasonally adjusted basis and 2.4% year-over-year unadjusted — it seems like good news for the Federal Reserve. Inflation, at least by this measure, continues downward in a measured manner toward what seems like a soft landing.

However, the data has complications that could mean no additional cut in the federal funds rate during this month's meeting of the Fed's Federal Open Market Committee.

Headline CPI was higher than the median forecasts, as collected by Dow Jones, of 0.1% month over month and 2.3% year over year. Core CPI, which is the inflation numbers without the volatility of food and energy, was up 0.3% month over month — the same as the previous month — rather than the forecast 0.2% and was 3.3% year over year instead of the expected 3.2%.

The combination of shelter inflation (0.2%) and food (0.4%) represented three-quarters of the headline numbers. Energy decreased 6.8% year over year, a deflationary factor that might be less so with the Middle East situation potentially pushing up oil prices and so energy costs.

Core doesn't include food or energy, so one aspect that increased inflation and a second one that decreased it. Some factors the Bureau of Labor Statistics pointed to that increased core inflation were shelter, motor vehicle insurance, medical care, apparel, and airline fares.

Services seem to be the biggest drivers of inflation. Shelter was up 4.9% year-over-year. Transportation services, up 8.5%. Medical care, up 3.6% after declining the previous two months. Motor vehicle insurance was up 16.3%.

The data is leaving experts with a variety of views. Gargi Chaudhuri, chief investment and portfolio strategist for the Americas at BlackRock, said in emailed remarks, "The silver lining for today's CPI print was the deceleration in shelter inflation which comprises over 40% of the core inflation basket. Owners' equivalent rent as well as rent of shelter decelerated from the previous month, a decline long expected by the market."

"Despite the stronger than expected data, we still believe inflation is running at a pace that allows the Fed to cut rates by 25bps in November and another 25bps in December," he added.

"The firmer-than-forecast CPI readings will increase rising doubt on whether the Fed lowers the Fed funds rate 25bps next month," Nationwide Chief Economist Kathy Bostjancic wrote in a note. "We continue to keep two 25bps rate cuts as our baseline for this year as the Fed 'recalibrates' monetary policy to be in better alignment with recent indicators of the labor market and inflation."

Reprinted with permission from the Thursday, 10 October 2024 16:37:16 EST online edition of GlobeSt © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.