CPI inflation in the US for October is expected to remain elevated, in close proximity to the previous month’s level of 8.2 per cent, making it unlikely for the US Federal Reserve to pause aggressive interest rate hikes. Economists expect consumer-based inflation to stay at or above 8 per cent, keeping yet another 50-75 basis points hike on the table for the US Fed’s meeting scheduled on December 14. The US inflation shot up to 9.1 per cent in June before falling to 8.2 per cent in September. The US Fed has raised the interest rate by 375 basis points this year, in efforts to tame inflation rate and bring it to below 2 per cent.
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Indicators lean towards a jump in interest rates
Tanvi Kanchan, Head – Corporate Strategy, Anand Rathi Shares and Stock Brokers, expects a jump of 0.7 per cent in inflation, month-on-month, in October. “As per the Cleveland Federal Reserve data points, which keeps track of the way the prices are trending, inflation expectations are + 0.7% for the current month, on a m-o-m basis, which is high, making it high in consideration for the last 12 months,” Kanchan said. She added, “If we look at the US equity markets, as per BoFA Global Research report, it indicated ~$62.1 billion flowing into cash in the latest week, the largest inflows since early 2020, underlining the prevailing pessimism.”
Street expects a cool-off in CPI; Services, housing inflation still hot
Ritika Chhabra, Economist and Quant Analyst, Prabhudas Lilladher, said, “The consensus estimates indicate that the US inflation is expected to rise by 8.0% in October. This is slightly less than the September reading of 8.2%, but still much above the US inflation target of 2%.” She further said, “While the goods prices have cooled off to some extent as a result of easing supply chain pressures and slowdown in consumer demand, the services inflation is yet to show any signs of easing. Within services, housing CPI continues to face upward pressures due to sticky rental prices.”
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50-75 bps interest rate hike likely
Commenting on the rate hike expectation, Kanchan, said, “Given that the US Fed has raised its concern on high levels of inflation, if the numbers are not in their range, the expectations of a pause in rate hike seems less likely.” Chabbra said the rate trading estimates are pricing a 57 per cent probability of a 50 basis point rate hike by the US Fed, and a 43 per cent probability on a 75 basis point jump.
