Inflation stays put

Two main measures of US inflation released last week might give the Federal Reserve pause—and cause it to pause its easing cycle. The annualized Consumer Price Index (CPI) for October rose to 2.6% from a growth of 2.4% in September. But more critical were the static month-over-month (m/m) readings. CPI rose 0.2% from September and core, which strips out volatile energy and food prices, rose 0.3%—both unchanged from the month prior. 

The Producer Price Index (PPI) brought even worse news to the Fed’s doorstep. Annualized headline and core PPI growth rates were significantly higher in October than September, rising to 2.4% from 1.9% and 3.5% from 3.3%, respectively. Each also increased m/m: to 0.2% from 0.1% and to 3.5% from 3.3%. 

The fact that these measures more or less fit market expectations gives little comfort, especially as other reports last week added heat. Retail sales grew 0.4% in October, and the NFIB Small Business Optimism Index was, well, more optimistic in October, climbing to 93.7.

It’s hard to say what these data points might mean for the Fed’s decisions in December, especially as more are forthcoming before that FOMC meeting. But another cut in the federal funds rate is not a lock.