Will the CPI report change the Fed's pivot plan?

Last week, the CPI report boosted the market as October 2022 inflation fell to the level +7.7% (from 8.2% in September). This could be a good sign for the Fed to slow down the rate hiking process, and possibly start cutting rates earlier next year. In addition, signs of an economy teetering on the brink of recession give the Fed more reason to pivot sooner than planned. However, the Fed is still fearful that the stagflation scenario of the 1970s-1980s could happen again.

This week's macroeconomics article by Viet Hustler will focus on analyzing 2 main points:

• Analysis of the changing trend of inflation in October

• Will the October CPI report change the Fed's interest rate plan in the near future?

CPI and the changing trend of inflation

Inflation has started to decrease in both headline CPI and core CPI:

Annual CPI growth (basic measure of inflation): inflation has truly eased

• Headline CPI: +7.7 y/y (lower than forecast +7.9% and September: +8.2%)

• Core CPI:  +6.3% y/y (lower than forecast +6.5% & September: +6.6% y/y)

  

Monthly CPI growth: strongest decline since September 2021.

• Headline CPI: +0.44% m/m (down from September: +0.40%)

• Core CPI: +0.27% m/m (sharp decline from September: +0.58%)

  

Structure in CPI growth: deflation in the consumer goods basket. Housing costs and services are still rising rapidly