Headline CPI dips on energy fall; core steady
Headline CPI rose 0.1% monthly in October, matching expectations and yielding a 2.2% annual inflation rate. A drop in energy prices helped moderate overall CPI relative to core (ex. food and energy), which rose 0.2% in October – a bit stronger than expected – and is running at a 2.0% year-on-year inflation rate. We expect CPI to remain around or slightly above the Fed’s long-run target of 2% for the next several months. Based on recent Fed communications, we believe that pace of inflation should not stand in the way of additional Fed easing – especially since a “substantial” improvement in labor market conditions appears to be some time off in the future yet. We expect the Fed to announce an outright Treasury purchase plan of roughly $45 bn/month at their December 12-13 meeting, to start once Operation Twist concludes at year end.
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