Transitory Inflation Outlook Remains Challenged

It’s premature to rule out the possibility that US inflation will peak in the months ahead, but recent projections that the peaking is imminent and will reflect a sharp decline in pricing pressure now looks unlikely.

Today’s update of’s Inflation Trend Index (ITI), a multi-factor profile of pricing behavior that attempts to model real-time trending activity, suggests that the peaking process will extend for longer than recently expected. Also, ITI is now showing that the peak may be a bit higher than anticipated in the previous update, published earlier this month.

For context, let’s begin with the actual data via the Consumer Price Index (CPI), which rose 5.4% year over year through September at headline level — slightly higher than the 5.3% annual increase in the previous month. Core CPI, which removes food and energy prices and is thought to be a better measure of the trend, held steady at a lower 4.0% rate. That’s below June’s 4.5% peak, but core inflation is still running close to the highest pace in three decades.

ITI attempts to estimate how current and near-term pricing behavior is evolving in real time, based on the latest numbers for a range of data sets. Note that ITI is not a proxy for the government’s CPI; rather, ITI offers some forward guidance on how the upcoming CPI annual change may shift. On that basis, ITI is projecting that October’s CPI one-trend will hold steady or possibly tick higher before retreating modestly in November.

ITI’s new estimate for October is slightly higher than the Oct. 14 update and serves as a reminder that the inflation trend continues to show signs of holding steady if not edging higher.

Monthly changes for ITI through October still indicate a relatively contained, stable profile after the surges recorded earlier in the year. But today’s revision shows a slight increase for this month vs. the flat performance previously reported.

The key takeaway is that elevated inflation is still expected to persist. The good news is that a further acceleration in CPI’s one-year trend appears to be a low-probability scenario, based on available data. On that basis, the upcoming October CPI report (scheduled for Nov. 10) is expected to post a one-year change that’s more or less in line with September’s update.

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