Inflation Expected to Tick Down in Latest CPI Report

While most of the country was waiting on U.S. midterm election results on Tuesday, observers of the economy were already looking toward Thursday’s fresh inflation report.

According to analysts reporting to FactSet, the U.S. Labor Department’s Consumer Price Index (CPI) rose an estimated 8% on a year-over-year basis in October, down from the 8.2% reported in September. Core CPI, which excludes food and energy prices, is forecast to be 0.5% against 0.6% last month.

The declines come as the U.S. central bank continues its months-long quest of taming inflation without casting the economy into a steep recession. Recent economic indicators have offered faint hope that the Fed could still scale back its recent monetary hawkishness.

Thursday’s data will be the first of two inflation reports before the Federal Open Market Committee (FOMC) meets for the final time this year on Dec. 14-15.

“That means the market impact may be more muted unless there is major divergence from the estimates,” said Jamie Dutta, market analyst at Vantage.

Last week, the Federal Reserve raised interest rates by 75 basis points for a fourth consecutive time in its ongoing effort to curb inflation, which has been stubbornly resilient. But rising short-term bond yields and a struggling stock market have prompted Fed officials to worry about financial stability risks and overtightening.

The tech-heavy Nasdaq 100 and S&P 500, which has a strong technology component are down 34% and 20%, respectively this year. Fed Chair Jerome Powell said last week that while “incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected,” it would be appropriate to slow the pace of rate increases “as soon as the next meeting.”

In this week’s CPI report, the focus will be on “stickier” categories like housing and rents which aren’t expected to decline until spring next year but account for over 30% of the CPI basket, Dutta said.

In addition, the Fed will also be scrutinizing services as they are most responsive to interest rates, said Brian Coulton, chief economist at Fitch Ratings. “If that gets worse, the Fed will be concerned,” he said.

Last month’s CPI release showed massive growth in bitcoin’s inverse correlation relationship with the U.S. dollar, according to a report by Arcane Research.

The U.S. dollar recently sank from recent highs as market makers see a potential Fed pause in the near future, which would lower gains for the dollar. Bitcoin (BTC) rose to over $21,000 on Friday after Powell's remarks last week but has since dropped sharply amid crypto exchange giant FTX’s struggles and proposed sale to rival Binance.

Because of bitcoin’s inverted relationship with the dollar, a downside surprise in the CPI report this week could push the dollar down decisively, which could give bitcoin a little upside, Arcane Research said.