NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: Inflation Comes in as No Surprise but Future Less Certain

November 13, 2024
Shannon Saccocia, CFA, Chief Investment Officer—Private Wealth

The release was in line with expectations despite fears of a re-acceleration on hurricane related disruptions and indications of modestly higher economic growth

October’s U.S. CPI, released today, and was right in line with expectations across the board despite fears of a re-acceleration on hurricane related disruptions and indications of modestly higher economic growth. U.S. headline CPI was reported up +0.2% month-over-month and up +2.6% year-over-year while core CPI was up +0.3% month-over-month and up +3.3% year-over-year.

Accounting for over half of the increase in CPI this month were shelter prices, which moderated in September but surged back this month, up +0.4% month-over-month on both higher rent and owners’ equivalent rent. The continued upward pressure on housing prices, coupled with the lack of relief in mortgage rates, represents an ongoing challenge for both the incoming administration and the Fed as we move into 2025 as there is no easy solution that can either rapidly increase inventory or sharply decrease rates in order to improve affordability.

Used car prices also accelerated in the month, up +2.7%. While admittedly still down -3.4% year-over-year, the uptick in prices likely represents a resumption of broader goods inflation as we move ahead. Goods deflation has helped to offset continued services inflation over the last year and a meaningful uptick in goods prices could result in a slower path to the Fed’s target.

Other notable points from the report were the moderation in food prices; both food at home and away from home prices decelerated from their September levels, a welcome sign as households look ahead to holiday hosting. Motor vehicle insurance, up +14% year-over-year, fell by -0.1% in October. Apparel also saw a sharp monthly decline of -1.5% following a +1.1% bump in September. Admittedly, apparel prices could experience some meaningful swings as we move into 2025, particularly if the Trump administration follows through on proposed China tariffs.

The release was met with enthusiasm as investors were likely positioned for an upside surprise –equity futures shot higher and Treasury yields fell immediately following the release. As for the impact on the Fed’s path to neutral rates, the odds of a 25 basis point rate cut in December – our base case – increased by over 20% since the prior day to almost 80% immediately following the print. While the path to neutral may involve a pause as we move through 2025 – year-over-year CPI remains stubbornly above +2% – at this juncture, it appears likely the Fed will make another move in December and then wait with the rest of us to see what the new year brings.

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