Not only is inflation easing up a bit, but it was also lower than expected in October. The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) on Nov. 10 and the all-items index for the 12 months ending October, increased 7.7%, driven largely by an increase in shelter prices, which contributed more than half of the monthly all items increase.
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Indexes for gasoline and food also increased.
This is also a 0.4% increase for the month, compared to a 0.6% Dow Jones estimate, and represents the first time the 12-month figure was below 8% since February, when it stood at 7.9%, according to BLS data.
Core CPI, which excludes food and energy, increased 6.3%, following a 6.6% increase in September, which was the largest 12-month increase in that index since August 1982, the BLS report showed.
Despite the drop, inflation continues to hurt the middle class and the poor, according to John Catsimatidis, chairman and CEO of Red Apple Group and chairman and CEO of Gristedes & D’Agostino’s Supermarkets.
“Although it seems to have adjusted downward, hikes in energy costs and food impacts the poor and the middle class the most. The decline in real estate does not affect the everyday people who live paycheck to paycheck and have to buy heating oil, electricity, and food, on a week-to-week basis,” he says.
Is This The End of High Inflation?
While inflation is still running high, investors and analysts are cautiously viewing the data as a sign that this might be the beginning of the end.
“Today’s CPI report is a step in the right direction, with core and headline inflation both coming in below expectations. While we’re thankful for progress, we’re certainly not out of the woods yet,” Ted Rossman, senior industry analyst at Creditcards.com, said. Rossman added that consumers are still facing double-digit year-over-year inflation in key categories such as groceries, gas and heat for their homes.
“And housing inflation isn’t far behind. So it’s baby steps so far. Not really enough for most people to notice the decline. We’re optimistic for further declines in the months ahead. The Federal Reserve remains in a difficult position trying to thread the needle between lowering the highest inflation readings in four decades without causing a substantial recession,” he added.
How Much Lower Was Inflation Than Expected?
Economists surveyed by The Wall Street Journal estimated that the CPI — which measures what consumers pay for goods and services including clothes, groceries, restaurant meals, recreational activities and vehicles — to have increased to 7.9% in October from a year earlier, while the core-CPI’s expectations stood at 6.5%.
“Inflation remains too high, but we are finally starting to see progress,” Sylvia Jablonski Kampaktsis, CEO, CIO Defiance ETFs, said. “On the inflation front the numbers look pretty tame, and the market likes it. All three indices pre-market are shooting up. Investors and the market needed this read. Futures are soaring after the CPI came in below estimates, and it gives the market hope that these moderations could lead the Fed to also moderate future hikes. “
This latest figure follows the CPI increasing 8.2% in September, 8.3% in August from a year earlier, 8.5% in July and 9.1% in June. Jeffrey Rosenkranz, portfolio manager, Shelton Capital Management said that the data could “very well be the inflection point in the data which allows the Fed to moderate their pace of rate hikes and lower the terminal rate necessary to vanquish inflation.”
“Of course, one month hasn’t yet made a trend, the data could backslide a little in coming months, and the FOMC [Federal Open Market Committee] will need to see more than a month or two of favorable data,” he added. “This is good news for risk assets and could mark the turning point for fixed income in particular. All-in yields on high-quality bonds are compelling even through a recession, and forward total returns from here look attractive.”
October Inflation’s Wins and Losses
In October, the energy index increased 1.8%, after falling in the preceding three months, bringing the index up 17.6% over the past 12 months. The gasoline index rose 4% over the month, also following three consecutive declines, while the electricity index rose 0.1%.
Meanwhile, the index for natural gas decreased in October, falling 4.6.%.
For the month of October, the food index increased 0.6%, with the food at home index rising 0.4% — the smallest monthly increase in this index since December 2021. The food away from home index also increased in October, rising 0.9%.
In addition, the BLS said that four of the six major grocery store food group indexes increased over the month. In October, the index for meats, poultry, fish, and eggs increased 0.6% and the index for cereals and bakery products was up 0.8%. percent.
On the other hand, the food indexes decreasing for the month include the index for fruits and vegetables, which fell 0.9% over the month, as well as the index for dairy and related products, which fell 0.1% in October.
The BLS reported that the shelter index was the dominant factor in the monthly increase in the index for all items less food and energy. It rose 0.8% in October — the largest monthly increase in that index since August 1990 — and a 6.9% increase over the last year.
The rent index rose 0.7% over the month, while the index for lodging away from home increased 4.9%.
Meanwhile, some of the indexes that decreased for the month include the medical care index, which fell 0.5%; the index for used cars and trucks, which fell 2.4%; the apparel index, which fell 0.7% and the index for airline fares, which fell 1.1%.
Is Real Estate Still a Good Investment?
With the shelter index showing rent continuing to rise, could now be the right time to buy a home? Suzanne Miller, President and founder of Empire State Properties, said that today’s CPI numbers are reflective of what is happening in the real estate industry overall.
“People are paying more for everything due to inflation, and raising interest rates doesn’t seem to be fixing anything,” she said. “On the positive side, I do think it’s a very strategic time to buy real estate right now if you’re in it for the long haul because prices are down and rents are through the roof so I really don’t see any way of losing money on a deal right now, at least for the next three to six months and maybe longer.”
What Does It All Mean?
This month’s CPI is one of the last economic indicators before the Federal Reserve’s upcoming December meeting. In turn, some experts believe this could push the Fed to ease up on its financial policy and take a less hawkish stance.
“In the first resoundingly positive inflation surprise of the year, CPI moderated to a rate of 7.7% year over year. This is a nice move in the right direction for inflation as it moves off peak levels,” Ben Vaske, investment research analyst at Orion Advisor Solutions, said. “While stocks will like this news, the Federal Reserve will need to continue seeing more encouraging data points, including a softer job market.”
David Russell, VP, Market Intelligence at TradeStation Group said that the data “was a welcome number for the bulls” and “reduces pressure on the Fed and likely means peak hawkishness is done.”
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He added, “Slower readings on food and used cars are also good news for working Americans. Combined with the higher initial claims, this morning’s headlines couldn’t be better for stocks. 75 basis points could be a thing of the past.”
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