After a closer look at the U.S. CPI, the Fed was wrong again! | Investing.com
- The Consumer Price Index (CPI) remains a key focus as inflation shows signs of being persistent.
- Economists predicted a slight rise in used car prices for October.
- Used car prices have increased by 2.7% recently, but the underlying issue stems from pandemic-related supply chain disruptions.
A Closer Look at Inflation and the Federal Reserve’s Actions
The Consumer Price Index (CPI) remains a key focus as inflation shows signs of being persistent. Recently, the Federal Reserve cut interest rates by 25 basis points. Initially, there was a suggestion to lower rates to a neutral level around 4%, provided quantitative tightening continued. However, inflation trends complicate the decision-making for the Fed.
Economists predicted a slight rise in used car prices for October. The consensus forecast for headline inflation was +0.21% and core inflation was +0.28%. Actual results were +0.24% for headline and +0.28% for core, aligning closely with expectations. Year-on-year, overall inflation stood at 2.58%, and core inflation at 3.30%. However, the movement in core CPI has not been promising, staying around 0.3%.
Used car prices have increased by 2.7% recently, but the underlying issue stems from pandemic-related supply chain disruptions. While used cars have previously exerted deflationary pressure, that effect seems to be diminishing.
Core commodities were flat year-on-year, influenced by declining apparel prices. Future core inflation is likely to rise, with housing costs and super core inflation becoming the main contributors to this increase. The Owners Equivalent Rent (OER) saw a month-over-month rise of 0.33% in September, with a similar trend in prime rents. However, anticipated sharp deflation in housing costs has yet to materialize.
Despite efforts, super core inflation has increased. This category reflects the strongest ties between wages and prices. Currently, median wage growth aligns closely with inflation trends, reinforcing concerns over persistent inflation.
The equilibrium inflation rate seems to hover between 3% and 4%. The Fed’s forthcoming decisions will significantly influence this outcome. As more CPI reports are released, the Fed faces scrutiny over its policy moves, which may be perceived as politically influenced. It is likely that the FOMC will opt to maintain current rates in the upcoming meeting.