Although core inflation continues to show some resilience, softer headline inflation slashes the odds of a year-end rate hike.
The hotly anticipated US inflation report has just been released and it was better than forecast, showing an annual rate of 3.2% to the end of October. The forecast was for inflation to slow from 3.7% in September to 3.3% on the expectation that oil prices have moderated more recently. Today’s report points to a loosening of the sticky inflation narrative and the tighter financial conditions that the Federal Reserve (Fed) has tried to manufacture since they instigated their hiking campaign over the last year or so is on course.
Core CPI pointed to more persistent inflation issues outside of the food and energy components, but at 4.0% year-on-year was 10 bps better than expectations, and the lowest in over two years. While all of this will not be seen as ‘mission accomplished’ just yet by the Fed, it does likely mean a hike in December is off the table and that alone will see an instant market-friendly reaction.
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