US inflation takes upward turn in October

Headline inflation rises for the first time in seven months, lifted by housing costs, while core inflation holds well above Fed’s official target.

13 November 2024

US Consumer Price Index (CPI) inflation for October came in at 2.6% on the previous year. Although this was firmer than the previous month's 2.4% figure, there was a certain amount of relief from some quarters that it was not worse (ie even higher). US equity index futures were stronger and interest rate expectations remained for a cut at the Federal Reserve's (Fed) next meeting. This market reaction was somewhat curious since the takeaway from the latest print is surely that inflation remains unvanquished and looking increasingly at odds with the Fed's prevailing narrative of looser policy being appropriate and desirable.

Housing costs and the dreaded car insurance continued to feature as the villains of the piece, while core CPI (excluding food and energy) rose 3.3% on the previous year, ahead of the Fed's official target of 2% and failing to cool since July. As if that was not awkward enough for the Fed, the implications of the US election look decidedly inflationary from some angles. Whether from the presumed extension of the 2017 tax cuts amid a sizeable budget deficit, the mass deportation of undocumented workers who do so much to support America's service economy or the imposition of tariffs on consumer imports, the risk of inflation seems higher rather than lower in the aftermath of the election. Commentators brushing off these latest CPI figures as 'better that we thought they might be' would do well to understand the dynamics driving today's inflation and how vulnerable they might be to exacerbation by the incoming administration.