US Watch

October CPI Inflation: An in-line report

Authored By

Analyst Name US Economics

Analyst Region BofAS

Analyst Name Stephen Juneau

Analyst Email stephen.juneau@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Name US Rates Research

Analyst Region BofAS

Analyst Name Meghan Swiber, CFA

Analyst Email meghan.swiber@bofa.com

Analyst Designation Rates Strategist

Analyst Region BofAS

Analyst Name G10 FX Strategy

Analyst Region MLI (UK)

Analyst Name Alex Cohen, CFA

Analyst Email alex.cohen2@bofa.com

Analyst Designation FX Strategist

Analyst Region BofAS

Report Details

13 November 2024 Macro United States

US Watch

October CPI Inflation: An in-line report

Authored By

Analyst Name US Economics

Analyst Region BofAS

Analyst Name Stephen Juneau

Analyst Email stephen.juneau@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Name US Rates Research

Analyst Region BofAS

Analyst Name Meghan Swiber, CFA

Analyst Email meghan.swiber@bofa.com

Analyst Designation Rates Strategist

Analyst Region BofAS

Analyst Name G10 FX Strategy

Analyst Region MLI (UK)

Analyst Name Alex Cohen, CFA

Analyst Email alex.cohen2@bofa.com

Analyst Designation FX Strategist

Analyst Region BofAS

Report Details

13 November 2024 Macro United States

Glossary

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Key takeaways

The October CPI report was in line with expectations as headline rose by 0.2% m/m and core increased by 0.3% m/m.
Based on the data, we are tracking core PCE inflation at 0.21% m/m, which would be a slight deceleration from September.
The data do not change our near-term Fed call. We expect the Fed to cut rates by 25bp in December.

US Watch

Glossary

CPI = Consumer Price Index

PPI = Producer Price Index

PCE = Personal Consumption Expenditures (Price Index)

OER = Owners' Equivalent Rent

NSA = Not Seasonally Adjusted

OIS- Overnight Indexed Swap

US Watch

Par for the course

October CPI was broadly in line with consensus expectations. Headline CPI rose by 0.2% m/m (0.24% unrounded) as energy prices only fell modestly. As a result, the y/y rate rose from 2.4% to 2.6%. Core CPI, meanwhile, rose by 0.3% m/m (0.28% unrounded, 2bps above our expectations), which left the y/y rate unchanged at 3.3%. That said, much of the firmness can be attributed to two categories air fares and used cars. Overall, inflation shows little signs of reaccelerating, but disinflationary progress has slowed.

More noise than signal

Much of the strength of the October CPI report can be attributed to noisy series that do not represent fundamentals. Indeed, air fares and used cars contributed 9.4bp to the 28bp increase in core CPI. Outside of these categories, there was broad-deflation in goods prices and services remain showed little signs of accelerating. We do not expect the deflation seen in core goods ex used cars to persist as the large drop in apparel prices was likely payback, but do not expect a broad-based acceleration either.

Rents were a mixed bag but may not matter to the Fed

Rents, the largest portion of the CPI basket was a mixed bag. Owners' equivalent rent rose by more than we expected 0.40% m/m vs. 0.34% m/m but rent was in line with our expectations 0.30% m/m. On a y/y basis, both continue to trend down but remain above pre-pandemic levels potentially due to existing rents catching-up to market rents. That said, asking rent measures are running closer to pre-pandemic levels, which Chair Powell has emphasized. So, CPI rents may not matter much to the Fed at this point.

Health insurance update comes with little fanfare

This month marked an update to the BLS' estimates of health insurance CPI. When the data used for this estimate was released earlier this year, we flagged that it would not really be a swing factor like it had been in prior years. That appears to be the correct read as health insurance rose by 0.5% m/m after a 0.4% m/m print in September.

Core PCE likely to print at 0.2% m/m

Given today's CPI data, we are now tracking core PCE inflation of 0.21% m/m, which would be a slight slowdown from last month's 0.25% m/m increase. We will update our estimate following PPI and the import price data.

25bp cut in December remains our base case

This is a business-as-usual print for the Fed. Inflation is moving sideways on a y/y basis, but there is nothing in today's report that would alarm the Fed. A lot of the firmness in the October CPI was in components that i) are idiosyncratic (used cars), ii) do not read through into the PCE (airfares) and iii) Powell is looking through (OER). Therefore, a 25bp cut in December firmly remains our base case.

US Watch

Exhibit 1: Core PCE % m/m tracking estimate
Based on today's CPI data we are currently tracking 0.21% for core PCE

Source: BEA, BofA global Research, Haver Analytics BofA GLOBAL RESEARCH

Rates and FX: Financial market reaction

The market is now pricing 20bps of cuts for Dec vs 15bps just before the CPI release (implied probability of 80% vs 60% of a 25bps cut). The CPI print was largely consistent with Bloomberg survey forecast consensus, but market pricing for the index was a bit firmer coming into the data. Much of the bull steepening and rally of the UST curve was driven by real rates vs breakevens, which are down 1-2bps across the curve.

The data endorse our views to buy dips in duration with a Fed still on a cutting trajectory near term. We would be more confident to add duration exposure with 10Y at/ above 4.5% but prefer to be long vs short duration with growth headwinds from tighter trade & immigration. The data also make us comfortable holding our 5s30s nominal and 5s10s real curve steepeners. Our real 5s10s view benefits from nominal curve steepening + risk of higher near-term inflation, potentially from tariffs and immigration uncertainty.

Following the in-line print, the USD knee-jerked lower across the board, along with the drop in US yields, and the further pricing in of a December Fed cut. The initial reaction appeared mainly due to the ongoing progress on rent and the incremental decline in on core-services ex housing. Interestingly, however, the USD more than fully reversed (to trade ~ 0.25% higher on net post print) while front-end us rates remained lower. Overall this represents a continuation of the significant USD rally post-election, and today's deviation from rates- while short-term- is likely reflective of broader bullish USD sentiment post-election. Our positioning data continues to show hedge funds as having been well positioned (long USD), but that real money investors are much more neutral, possibly representing a fresh source of USD demand, as we await clarity on what could be a sizeable change in trade/tariff policy, among others.

Exhibit 2: CPI aggregates 3-month annualized % ch.
Core CPI rose by 3.6% m/m on a 3-month annualized pace, but the general trend of disinflation remains in tact

Source: BLS BofA GLOBAL RESEARCH

Exhibit 3: CPI aggregates 3-month annualized % ch.
Core services ex rent and OER accelerated over the last three months but that reflects a surge in air fares.

Source: BLS BofA GLOBAL RESEARCH

Exhibit 4: Core services ex rent and OER v quits rate
A decline in the quits rate and a cooler labor market should contribute to further disinflation in core services ex rent and OER.

Source: BLS, BofA Global Research BofA GLOBAL RESEARCH

Exhibit 5: Share of goods with price declines on a 3-month annualized basis (3-month moving average)
Close to 47% of goods categories saw price declines on average over the last three months

Source: BLS, BofA Global Research BofA GLOBAL RESEARCH

Exhibit 6: Distribution of % y/y core CPI
The share of the CPI basked with inflation above 6% has fallen, but there is still a much larger share of the basket in the 4-6% range.

Source: BLS BofA GLOBAL RESEARCH

Exhibit 7: CPI Forecast vs actual
Headline CPI came in above our expectations, but core was pretty much in line with our forecast
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
	October Forecast
	Actual	Forecast	Error
NSA Index (level)	315.664	315.200	0.464

Headline CPI (All Items)	0.24%	0.13%	0.11%
Food	0.16%	0.13%	0.03%
Energy	-0.02%	-1.42%	1.40%
Core CPI	0.28%	0.26%	0.02%
Core goods	0.05%	0.05%	0.00%
Household furnishings and supplies	-0.04%	-0.10%	0.06%
Apparel	-1.46%	0.20%	-1.66%
Transportation commodities less motor fuel	0.81%	0.26%	0.55%
Of which:
New vehicles	-0.05%	0.00%	-0.05%
Used cars and trucks	2.72%	0.75%	1.97%
Medical care commodities	-0.19%	-0.25%	0.06%
Recreation commodities	-0.01%	-0.37%	0.36%
Other recreational goods	-0.60%	0.04%	-0.63%
Education and communication commodities	-1.08%	-0.25%	-0.83%
Alcoholic beverages	0.44%	0.14%	0.30%
Other goods	0.37%	0.25%	0.12%

Core Services	0.35%	0.32%	0.03%
Shelter	0.38%	0.34%	0.04%
Of which:
Rent	0.30%	0.30%	0.00%
Lodging away from home	0.40%	0.50%	-0.10%
OER	0.40%	0.34%	0.06%
Water and sewer	0.50%	0.35%	0.15%
Medical care services	0.39%	0.28%	0.11%
Of which:
Health insurance	0.48%	0.40%	0.08%
Transportation services	0.44%	0.66%	-0.21%
Of which:
Airfares	3.19%	0.50%	2.69%
Recreation services	0.70%	-0.01%	0.71%
Education and communication	-0.16%	0.10%	-0.26%
Other personal services	0.27%	0.20%	0.07%
Source: BLS, BofA Global Research, Haver Analytics BofA GLOBAL RESEARCH

Exhibit 8: CPI heatmap (% m/m)
Core CPI rose by 0.3% m/m in October
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
Sep-24 weight	Component	Oct-24	Sep-24	Aug-24	Jul-24	Jun-24	May-24	Apr-24	Mar-24	Feb-24	Jan-24	Dec-23	Nov-23
100.0	Headline CPI	0.24%	0.18%	0.19%	0.15%	-0.06%	0.01%	0.31%	0.38%	0.44%	0.31%	0.23%	0.16%
13.5	Food	0.16%	0.40%	0.12%	0.16%	0.24%	0.14%	0.02%	0.10%	0.02%	0.39%	0.21%	0.17%
6.6	Energy	-0.02%	-1.85%	-0.78%	0.03%	-2.04%	-2.03%	1.12%	1.13%	2.26%	-0.91%	-0.21%	-1.56%

79.9	Core CPI	0.28%	0.31%	0.28%	0.17%	0.06%	0.16%	0.29%	0.36%	0.36%	0.39%	0.28%	0.31%
18.5	Core Goods	0.05%	0.17%	-0.17%	-0.32%	-0.12%	-0.04%	-0.11%	-0.15%	0.11%	-0.32%	-0.06%	-0.22%
16.6	Core Goods ex Used Cars	-0.25%	0.16%	-0.08%	-0.09%	0.04%	-0.12%	0.04%	-0.04%	0.06%	0.08%	-0.16%	-0.44%
3.4	Household Furnishings and Supplies	-0.04%	0.03%	-0.27%	0.06%	-0.18%	0.03%	-0.39%	-0.12%	-0.31%	-0.13%	-0.32%	-0.53%
2.6	Apparel	-1.46%	1.14%	0.26%	-0.45%	0.11%	-0.34%	1.20%	0.65%	0.55%	-0.70%	0.00%	-0.64%
6.0	Motor Vehicles & parts	0.81%	0.25%	-0.28%	-0.82%	-0.59%	-0.07%	-0.72%	-0.47%	0.10%	-1.11%	0.31%	0.47%
3.6	New Vehicles	-0.05%	0.15%	0.05%	-0.19%	-0.16%	-0.49%	-0.45%	-0.17%	-0.10%	-0.04%	0.18%	-0.01%
1.9	Used Cars and Trucks	2.72%	0.31%	-0.96%	-2.30%	-1.53%	0.60%	-1.38%	-1.11%	0.52%	-3.37%	0.59%	1.37%
1.5	Medical Care Commodities	-0.19%	-0.68%	-0.22%	0.16%	0.19%	1.28%	0.45%	0.16%	0.09%	-0.61%	-0.12%	0.46%
2.0	Recreation Commodities	-0.01%	-0.28%	-0.23%	-0.34%	0.38%	-0.15%	-0.03%	-0.46%	-0.20%	0.77%	-0.54%	-0.60%
0.8	Education and Communication Commodities	-1.08%	-0.70%	-0.44%	0.40%	-0.47%	-1.63%	0.05%	-1.16%	0.24%	0.62%	-0.19%	-2.55%
0.8	Alcoholic Beverages	0.44%	0.12%	0.00%	0.31%	0.19%	0.12%	0.06%	0.09%	-0.05%	0.27%	0.12%	-0.09%
1.4	Other Goods	0.37%	0.32%	0.21%	0.22%	0.21%	0.47%	-0.15%	0.22%	0.67%	0.32%	-0.51%	0.04%

61.4	Core Services	0.35%	0.36%	0.41%	0.31%	0.13%	0.22%	0.41%	0.52%	0.46%	0.66%	0.38%	0.46%
36.5	Shelter	0.38%	0.22%	0.52%	0.38%	0.17%	0.40%	0.38%	0.42%	0.43%	0.63%	0.41%	0.45%
27.0	Owners' Equivalent Rent of Residences	0.40%	0.33%	0.50%	0.36%	0.28%	0.43%	0.42%	0.44%	0.44%	0.56%	0.42%	0.49%
7.7	Rent of Primary Residence	0.30%	0.28%	0.37%	0.49%	0.26%	0.39%	0.35%	0.41%	0.46%	0.36%	0.39%	0.44%
1.4	Lodging Away From Home	0.40%	-1.93%	1.75%	0.22%	-2.02%	-0.10%	-0.16%	0.08%	0.15%	1.78%	0.15%	-0.47%
1.1	Water & Sewer & Trash Collection Services	0.50%	0.75%	0.17%	0.46%	0.22%	0.08%	0.38%	0.29%	0.45%	1.10%	0.14%	0.37%
6.5	Medical Care Services	0.39%	0.66%	-0.09%	-0.34%	0.17%	0.34%	0.45%	0.56%	-0.05%	0.70%	0.50%	0.50%
6.5	Transportation Services	0.44%	1.35%	0.89%	0.41%	-0.55%	-0.50%	0.86%	1.52%	1.39%	0.97%	0.09%	1.03%
0.8	Airline Fares	3.19%	3.16%	3.86%	-1.60%	-5.00%	-3.56%	-0.81%	-0.37%	3.57%	1.40%	0.86%	-0.22%
3.2	Recreation Services	0.70%	-0.47%	0.02%	0.42%	-0.11%	-0.21%	0.34%	0.06%	0.45%	0.39%	1.15%	0.06%
5.0	Education and Communication Services	-0.16%	0.10%	0.17%	0.16%	0.00%	0.26%	0.23%	0.20%	0.45%	0.42%	0.16%	0.10%
1.5	Other Personal Services	0.27%	0.13%	0.20%	0.26%	0.92%	-0.32%	1.05%	0.76%	-0.62%	0.95%	0.11%	0.29%
Source: BLS, BofA Global Research BofA GLOBAL RESEARCH

Exhibit 9: CPI heatmap (%y/y)
Headline CPI rose by 2.6% y/y in October and core rose by 3.3% y/y
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
Sep-24 weight	Component	Oct-24	Sep-24	Aug-24	Jul-24	Jun-24	May-24	Apr-24	Mar-24	Feb-24	Jan-24	Dec-23	Nov-23
100.0	Headline CPI	2.60%	2.44%	2.53%	2.89%	2.97%	3.27%	3.36%	3.48%	3.15%	3.09%	3.35%	3.14%
13.5	Food	2.13%	2.27%	2.05%	2.18%	2.22%	2.13%	2.21%	2.24%	2.23%	2.57%	2.70%	2.95%
6.6	Energy	-4.86%	-6.85%	-3.98%	1.07%	0.99%	3.69%	2.61%	2.12%	-1.90%	-4.56%	-2.02%	-5.44%

79.9	Core CPI	3.33%	3.31%	3.20%	3.17%	3.27%	3.42%	3.61%	3.80%	3.75%	3.86%	3.93%	4.01%
18.5	Core Goods	-1.18%	-1.25%	-1.65%	-1.69%	-1.70%	-1.67%	-1.21%	-0.67%	-0.33%	-0.31%	0.12%	0.03%
16.6	Core Goods ex used cars	-0.79%	-0.52%	-0.69%	-0.58%	-0.65%	-0.70%	-0.56%	-0.55%	-0.21%	0.08%	0.39%	0.76%
3.4	Household Furnishings and Supplies	-2.15%	-2.23%	-2.56%	-2.26%	-2.52%	-2.54%	-2.78%	-2.75%	-2.26%	-1.34%	-0.95%	-0.34%
2.6	Apparel	0.30%	1.79%	0.32%	0.23%	0.78%	0.80%	1.32%	0.40%	-0.04%	0.06%	0.97%	1.08%
6.0	Motor Vehicles & Parts	-1.66%	-2.30%	-4.39%	-4.55%	-4.23%	-3.85%	-2.71%	-0.82%	-0.32%	-0.76%	0.04%	-0.90%
3.6	New Vehicles	-1.27%	-1.29%	-1.20%	-1.03%	-0.88%	-0.76%	-0.36%	-0.05%	0.44%	0.74%	1.02%	1.33%
1.9	Used Cars and Trucks	-3.36%	-5.07%	-10.35%	-10.93%	-10.10%	-9.32%	-6.86%	-2.22%	-1.77%	-3.47%	-1.31%	-3.75%
1.5	Medical Care Commodities	0.97%	1.59%	1.98%	2.78%	3.14%	3.13%	2.49%	2.51%	2.95%	3.00%	4.74%	4.98%
2.0	Recreation Commodities	-1.67%	-1.51%	-0.91%	-1.12%	-1.56%	-2.26%	-2.17%	-1.89%	-1.25%	-0.64%	-1.20%	-0.62%
0.8	Education and Communication Commodities	-6.73%	-6.91%	-5.95%	-6.20%	-7.73%	-7.36%	-6.01%	-6.23%	-5.61%	-6.56%	-7.21%	-7.89%
0.8	Alcoholic Beverages	1.58%	1.46%	1.95%	1.93%	1.82%	1.69%	2.03%	2.40%	2.42%	2.29%	2.54%	2.90%
1.4	Other Goods	2.40%	2.97%	3.19%	3.20%	3.45%	3.45%	3.58%	3.93%	4.35%	4.40%	4.55%	5.10%

61.4	Core Services	4.77%	4.76%	4.93%	4.90%	5.02%	5.21%	5.33%	5.39%	5.24%	5.41%	5.30%	5.49%
36.5	Shelter	4.88%	4.85%	5.23%	5.05%	5.16%	5.41%	5.55%	5.65%	5.74%	6.04%	6.15%	6.51%
27.0	Owners' Equivalent Rent of Residences	5.19%	5.21%	5.38%	5.30%	5.45%	5.65%	5.75%	5.91%	5.97%	6.23%	6.35%	6.68%
7.7	Rent of Primary Residence	4.60%	4.78%	4.97%	5.09%	5.07%	5.30%	5.44%	5.68%	5.77%	6.09%	6.47%	6.87%
1.4	Lodging Away From Home	-0.08%	-2.84%	1.76%	-2.27%	-2.35%	-1.42%	-0.27%	-1.93%	-0.42%	0.98%	0.17%	0.85%
1.1	Water & Sewer & Trash Collection Services	5.02%	4.75%	4.24%	4.53%	4.59%	4.77%	5.31%	5.28%	5.32%	5.55%	5.19%	5.35%
6.5	Medical Care Services	3.83%	3.63%	3.21%	3.26%	3.29%	3.06%	2.66%	2.15%	1.07%	0.62%	-0.49%	-0.88%
6.5	Transportation Services	8.15%	8.53%	7.89%	8.83%	9.43%	10.53%	11.21%	10.73%	9.94%	9.53%	9.68%	10.06%
0.8	Airline Fares	4.09%	1.58%	-1.29%	-2.81%	-5.07%	-5.87%	-5.81%	-7.09%	-6.14%	-6.43%	-9.35%	-12.16%
3.2	Recreation Services	2.85%	2.23%	3.24%	3.10%	3.40%	3.94%	4.12%	4.53%	4.49%	5.32%	5.65%	4.79%
5.0	Education and Communication Services	2.14%	2.32%	2.27%	2.17%	2.25%	1.97%	1.60%	1.43%	1.51%	1.27%	1.27%	1.37%
1.5	Other Personal Services	4.08%	4.07%	4.61%	5.13%	4.78%	4.05%	4.88%	5.36%	5.05%	6.83%	6.39%	6.12%
Source: BofA Global Research, Bureau of Labor Statistics BofA GLOBAL RESEARCH

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Timestamp: 13 November 2024 10:34AM EST

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Timestamp: 13 November 2024 10:34AM EST

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US Watch

October CPI Inflation: An in-line report

US Watch

October CPI Inflation: An in-line report

Par for the course

More noise than signal

Rents were a mixed bag but may not matter to the Fed

Health insurance update comes with little fanfare

Core PCE likely to print at 0.2% m/m

25bp cut in December remains our base case

Rates and FX: Financial market reaction

Important Disclosures

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Research Analysts