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ON DECK FOR WEDNESDAY, NOVEMBER 13
ON DECK FOR WEDNESDAY, NOVEMBER 13

KEY POINTS:

  • Stable US Treasuries await US CPI
  • Will US core CPI retain a firming trend?
  • It’s just one of 3 inflation reports and payrolls before the next FOMC meeting

US Ts are a little calmer this morning ahead of US CPI as European bond yields continue to rise at a gentler pace. Stocks are little changed on balance with US and Canadian futures are touch lower while European bourses range from flat to small gains. Equities in Tokyo and Seoul sold off overnight but China was relatively stable. Currencies are mixed.

US CPI and potential reactions by FOMC members will dominate calendar-based risk. CPI for October arrives at 8:30amET. Fed-speak with include Kashkari (8:30amET), Williams (9:30amET), Logan (9:45amET), Musalem (1pmET) and Schmid (1:30pmET).

Key is whether core CPI continues its recent ascent (chart 1). The median and mode for today’s US core CPI estimates is 0.3% m/m SA with 0.2% the next most common. The Cleveland Fed’s “nowcast” rounds up to 0.3% m/m. The year-over-year rates are expected to edge higher to 2.6% (2.4% prior) for total CPI with core unchanged at 3.3%.

Chart 1: US Core CPI Inflation Progress

Issues with seasonal adjustment factors are likely to continue to put upside risk to the estimate. The last four Octobers in a row have had the four highest seasonal adjustment factors on record compared to like months of October and something similar is expected this time (chart 2). Why such a clustering? SA factors have a recency bias toward the latest years which means the pandemic era’s distortions. The BLS admits this. SA factors have overestimated inflation at the start of the year, understated it in summer, and return to overstating it at about this time of year.

Chart 2: Comparing US Core CPI SA Factors for All Months of October

Other drivers are as follows:

  • Gasoline all grades fell by about 2½% m/m NSA which translates into a drop of about 0.6% m/m SA. At a 3.4% basket weight the contribution to overall CPI will round up to -0.1% m/m SA.
  • Food prices are expected to moderate after the prior month that posted the biggest seasonally adjusted jump since January.
  • Vehicle prices should have a trivial effect. New vehicle prices and used vehicle prices will probably each contribute nothing material to m/m CPI and core CPI in weighted terms.
  • I’ve assumed a more moderate increase in core services prices this time and following September’s jump that was the largest in five months along a recently accelerating trend.
  • core goods prices (ex-food and energy commodities) are estimated to post a mild gain. One particular category that is expected to register a more moderate rise is clothing that jumped by 1.1% m/m SA in September for the biggest gain since April as new Fall lines changed over with greater than seasonally normal price increases. 
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