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US CPI data supports 25 bps Fed rate cut in December, Macquarie says

Published 2024-11-14, 03:58 a/m
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Investing.com -- Macquarie’s team noted that the latest consumer price index (CPI) data supports their call for a 25 basis points interest rate cut in December.

Inflation ticked higher in October, closely matching Wall Street’s estimates, according to the Bureau of Labor Statistics report on Wednesday.

The CPI, a key gauge of costs across a range of goods and services, rose 0.2% for the month. This brought the annual inflation rate to 2.6%, a slight increase from 2.4% in September.

Both figures were in line with Dow Jones’ predictions.

When excluding food and energy, inflation was a bit stronger. Core CPI rose 0.28% in October, moderating slightly from September and translating to a 3.3% annual rate, which also aligned with expectations.

Within the details, core goods prices remained flat month-over-month, even as used car and truck prices saw a substantial gain.

Core services, excluding rent and owners' equivalent rent (OER), slowed to a 0.3% monthly increase, largely due to a decline in airline fares, which are calculated differently in the core Personal Consumption Expenditures (PCE) index.

Meanwhile, rent and OER both accelerated, though they remain on downward trends. OER rose 0.4% for the month, while rent of primary residence saw a 0.3% increase.

“As in recent months, we suspect the core PCE reading should be softer given the sub-component details,” Macquarie economists David Doyle and Chinara Azizova commented.

As for the 3.3% annual core inflation rate, economists believe this figure “should moderate in coming months, as base effects are favorable, particularly in 1Q24.”

“Threatened tariffs present an upside risk to the outlook beyond this,” they added.

Stock market futures edged up after the report’s release, while Treasury yields declined. The data prompted traders to significantly increase the likelihood that the Federal Reserve will lower its benchmark interest rate by an additional quarter-point in December.

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