October CPI report was out this morning. Headline CPI MoM rose 0% vs. 0.4% in September while the core CPI MoM rose 0.2% in October vs. 0.3% in September. Headline CPI YoY rose 3.2% in October vs. 3.7% in September, 3.7% in August, 3.2% in July, 3% in June, 4.0% in May, 4.9% in April and 5% in March. Core CPI YoY rose 4% in October vs. 4.1% in September, 4.2% in August, 4.7% in July, 4.8% in June, 5.3% in May, 5.5% in April and 5.6% in March. The index for shelter continued to rise in October, offsetting a decline in the gasoline index and resulting in the seasonally adjusted index being unchanged over the month. The shelter index increased 0.3 percent in October, after rising 0.6 percent the previous month. The index for rent rose 0.5 percent in October, and the index for owners’ equivalent rent increased 0.4 percent over the month. The lodging away from home index decreased 2.5 percent in October.
The October CPI numbers are better than expected. The consensus was 0.1% for headline CPI and 0.3% for core CPI. It’s good that the YoY core CPI has been steadily trending down since early this year. Chances there will not be more rate hikes for this cycle. But my understanding is that the core CPI YoY has to go down below 3% so it will probably take a while for the Fed to start cutting rates. The current ETA is mid 2024. By then, I expect to see a lot more corporate bankruptcies and commercial real estate defaults, which is part of the anti-fragile selection in a tightening cycle.