US Inflation Outlook Continues To Run Hot

Anyone looking for a convincing signs that inflation’s peaking via tomorrow’s CPI report for October (Nov. 10) looks set to be disappointed.

Economists are projecting that pricing pressure will turn higher, based on’s consensus point forecast. Headline consumer inflation is on track to rise 5.8% on a year-over-year basis, up from September’s 5.4% increase. If correct, the gain will mark a new pandemic peak, posting the hottest headline inflation since 2008 (using unadjusted data).

Core CPI, which strips out food and energy and offers a more reliable measure of the trend, is also set to rise, based on survey numbers. The consensus forecast points to a 4.3% year-over-year gain, up from 4.0% previously. That’s below the 4.5% pandemic peak in June – a 30-year high – but just barely.

Federal Reserve Chairman Jerome Powell laid the groundwork last week for expecting inflation to stay hot. “We see shortages and bottlenecks persisting into next year, well into next year,” he advised. “We see higher inflation persisting.”

Economists at Goldman Sachs agree. “The inflation overshoot will likely get worse before it gets better,” they predict in a new research report.’s ensemble forecasting model for core CPI offers a slightly more encouraging point forecast for October, projecting that inflation will hold steady at a 4.0% year-over-year increase. But the range of possibilities at the 95% confidence level leaves plenty of room for surprises.

In another sign that inflation’s peaking will continue, the Inflation Trend Index (ITI) projects that pricing pressure will hold steady at an elevated pace through at least November. (Note that ITI is not a proxy for the government’s CPI; rather, ITI offers some forward guidance on how the CPI’s directional bias may shift.)

Some analysts see some light at the end of the tunnel. Julian Howard, director of multi-asset solutions at GAM, says there are signs that the “rate of ascent” in inflation is starting to ease. “So I see an easing of inflation across the board and I think that the Fed will have been proved right to keep stalling and stalling on rate rises because the data will eventually bail them out on this, and I think Jerome Powell’s been extremely sensible on the matter.”

Perhaps, but tomorrow’s CPI data isn’t expected to support that optimistic outlook. Howard isn’t necessarily wrong, but at the moment his forecast looks early.

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By James Picerno

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