US October CPI Up 3.2%...Bond Yields Plunge Amid Inflation Slowdown Trend

The US Consumer Price Index (CPI) inflation rate for October came in below expectations, showing a slowing trend. As inflation easing was confirmed, New York stock futures rose, and the 10-year US Treasury yield immediately dropped below 4.5%.

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According to the US Department of Labor on the 14th (local time), the October CPI rose 3.2% compared to the same month last year. This is a significant slowdown from the previous month's increase of 3.7%. It also fell short of the 3.3% forecast compiled by Dow Jones experts. The October CPI was flat compared to the previous month, missing both the September increase of 0.4% and the market expectation of 0.1%.

The core CPI, which excludes volatile energy and food prices, rose 4.0% year-over-year, below the market forecast of 4.1%. This is the smallest increase in about two years since September 2021. Compared to the previous month, it rose 0.2%.

This inflation easing trend is due to the decline in energy prices, including gasoline. Gasoline prices fell 5% over the month, and energy prices recorded a 2.5% decrease. Used car prices also dropped 0.8%. Housing costs, which account for about one-third of the overall CPI index, rose only 0.3%, about half the previous month's level. Experts see controlling housing inflation as the key to achieving the 2% price stability target, Bloomberg reported.

As inflationary pressures eased, Treasury yields plunged that day. In the New York bond market, the 10-year yield fell to around 4.49%, more than 10 basis points lower than just before the CPI release. The 2-year yield, sensitive to monetary policy, dropped to about 4.87%. Meanwhile, US stock futures surged over 1% ahead of the regular market opening.

Oscar Munoz, US Chief Macro Strategist at TD Securities, said, "Everything is a good report for the Federal Reserve (Fed)," adding, "They will continue to keep the possibility of another rate hike, but the market will not accept it," effectively diagnosing that the tightening cycle has ended. Bryce Doty, Portfolio Manager at Sit Fixed Income Advisors, said, "As inflation continues to slow, it seems wise to effectively end the tightening cycle."

The following day, the Producer Price Index (PPI), a wholesale price indicator, and retail sales data, which gauge US consumer conditions, are scheduled to be released.