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US Inflation heats up in October, paving the way for a Fed hike in December

 

Consumer prices rose 0.2% (month-over-month) in October, driven by rising prices in core components. Core CPI (excluding food and energy) was up a matching 0.2%, in line with market expectations.

On a year-over-year basis, overall consumer price inflation edged up to 0.2% (from -0.2%). The close-to-zero trend has been in place for all of 2015 on the collapse in energy prices. Core inflation was steady at 1.9%, unchanged from September's pace.

The main event in October's CPI report was the continued increase in core services inflation, which is now running at a hearty 2.8% year-over-year. Inflation is heating up in a number of services categories including medical services, shelter, education and personal services.

Providing an offset to healthy services inflation was core goods prices, which fell 0.1% in October. Core goods inflation was down 0.7% from year ago levels, as a stronger dollar weighs on the prices of many imported consumer goods. Categories like apparel, motor vehicles and technology goods were all in deflationary territory.

"October's inflation numbers are just the sort of confirmation the Fed is looking for that domestic strength is generating inflationary pressures. For now, low energy prices and falling prices for many imported goods are keeping headline inflation incredibly benign, but that won't last forever. Monetary policy acts with a lag, and the Fed needs to hike rates before the inflation target is reached. The first rate hike is likely to come at the Fed's next meeting on Dec. 16th", notes TD Economics.

 

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2018-10-17 00:46:27
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