The U.S. October CPI will be released tonight: core inflation is expected to remain strong while overall inflation is set to rise

According to the Zhitong Finance APP, the U.S. October CPI data will be released on Wednesday evening. Market participants predict that this latest data will show core inflation remaining strong for the third consecutive month, and the pace of interest rate cuts by the Federal Reserve in the coming months will also become a focal point of debate.

The market currently expects the year-on-year increase in the U.S. October CPI to be 2.6%, up from 2.4% in September; the month-on-month increase is expected to be 0.2%, unchanged from the previous value. The year-on-year increase in core CPI, excluding food and energy, is expected to be 3.3%, unchanged from the previous value; the month-on-month increase is expected to be 0.3%, also unchanged from the previous value.

Economist Scott Johnson stated, "The U.S. October CPI data may weaken expectations for a rate cut by the Federal Reserve in December. Bloomberg Economics' real-time forecasts indicate that there are upward risks to the overall inflation month-on-month indicators, while core inflation seems likely to remain at a relatively high level."

If the U.S. October CPI data is lower than expected, indicating that overall inflation is currently manageable, U.S. Treasury yields and the dollar may come under pressure; if the CPI data shows an unexpected rebound, it could raise market concerns about a resurgence of high inflation, potentially hindering future rate cuts, and U.S. Treasury yields and the dollar may continue to rise.

Several key components of the upcoming inflation data are worth noting. First is rent. Owners' Equivalent Rent (OER) is the largest single component of the CPI and is crucial for determining the underlying trend of this indicator. OER inflation accelerated in July and August—leading to concerns that the inflation slowdown trend in the first half of the year would reverse—and slowed down again in September.

Economists at Morgan Stanley, led by Diego Anzoategui, believe that OER may see a slight increase in October before returning to a downward trend. They stated, "The OER in September may have declined due to seasonal factors, and we do not expect a similar deviation this time." "However, the leading indicators in our model—new leases and renewal inflation—remain weaker than housing CPI, suggesting a continued slowdown in the future."

Secondly, hotel prices. Even if rent inflation remains stable, hotel prices are expected to be affected by hurricanes, which could lead to a significant increase in the prices of the away-from-home accommodation category in the CPI. Analysts also pointed out that the U.S. Bureau of Labor Statistics has seasonally adjusted this item to explain the slowdown in business after the summer travel peak, meaning that unadjusted prices must decline significantly to show a decrease in the seasonally adjusted price readings.

Barclays economists Pooja Sriram and Marc Giannoni stated, "Based on high-frequency data on average room rates, we predict that away-from-home accommodation prices will rise." "Costar's weekly report shows that due to displacements caused by hurricanes, demand and occupancy rates in the Southeast were higher in October, while also keeping in mind the daunting seasonal factors in October."Another point of concern is the price of used cars. The hurricane may have also driven up used car prices, which is one of the most important categories in the CPI index. Over the past 16 months, the price decline in this category has helped lower overall core commodity prices in 14 of those months. The trend of core commodity prices excluding used cars has been mixed, with only 9 months experiencing declines in the past 16 months.

Wells Fargo economists Sarah House and Aubrey Woessner stated, 'The recent rebound in used car auction prices suggests that the used car CPI may see its largest monthly increase in about a year.' 'We still believe that the benefits from smoother supply chains and weaker demand have not fully materialized, but the deflationary pressures on new and used cars may fade in the last few months of this year, especially as the damage caused by the hurricane drives demand for replacement vehicles and parts.'