October’s Consumer Price Index (CPI) will serve as the final test of whether a resurgence in inflation is a risk to the US economy as the Federal Reserve debates its next interest rate decision after cutting rates by a quarter of a percentage point last week.
Read more: What the Fed’s interest rate cut means for bank accounts, CDs, loans and credit cards
The report, which will be released Wednesday at 8:30 a.m. ET, is expected to show headline inflation of 2.6%, up slightly from September’s annual price increase of 2.4%, which lowest annual headline value since February 2021 marked. are expected to have increased by 0.2% from the previous month, matching September’s monthly increase.
On a core basis, which excludes the more volatile costs of food and gas, prices are expected to rise 3.3% year-on-year for the third month in a row in October. Economists expect monthly core price increases will also match the previous month’s 0.3%, Bloomberg data show.
Core inflation has remained stubbornly high due to higher costs for shelter and services such as insurance and medical care
“October’s CPI report will likely support the idea that the last mile of inflation’s journey back to target will be the most difficult,” Jay Bryson, Wells Fargo’s chief economist, wrote in a note to clients on Friday.
Bank of America economists Stephen Juneau and Jeseo Park agreed, writing in a preview note Monday that “inflation [is] It is unlikely that much progress will be made” and that the upcoming CPI print will likely show inflation “moving sideways after a period of substantial disinflation.”
Although inflation is slowing, it remains above the Federal Reserve’s 2% annualized target.
The outlook for inflation remains uncertain as economists warn of another potential inflation revival following the election of Donald Trump as the country’s next president.
Compared to the current Biden administration, Trump and his proposed policies are seen as potentially more inflationary due to the president-elect’s campaign promises of high tariffs on imported goods, tax cuts for businesses and curbs on immigration.
At a press conference after the latest rate cut, Federal Reserve Chairman Jerome Powell said the central bank does not and will not make decisions based on expected policy changes from a new administration.
“In the short term, the elections will have no effect on our policy decisions,” he said at the time. “We do not know what the timing and content of any policy changes will be. We therefore do not know what the effects on the economy would be, in particular whether and to what extent that policy would be important for achieving our objectives. target variables: maximum employment and price stability.”
As of Tuesday, markets continued to price in another 25 basis point cut in December, although the likelihood of investors expecting a stable central bank rate rose to about 35% from 22% a week ago, according to the CME FedWatch Tool.
“Given Chairman Powell’s comments last week, we believe this would keep the Fed on track to cut rates again by 25 basis points at its December meeting,” BofA’s Juneau and Park wrote. “That said, the shift in risks around inflation, combined with the resilience of the US economy, has increased uncertainty about the medium-term policy outlook.”
“While economic fundamentals suggest inflation should continue to moderate, policy changes pose an upside risk to the outlook,” the duo added.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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