US October CPI Rises 2.6% 'In Line with Expectations'... December Rate Cut Outlook Expands

Core CPI rises 3.3% YoY
December small cut forecast jumps from 58% to 75% in one day

The US Consumer Price Index (CPI) for last month rose by the mid-2% range, in line with market expectations. On Wall Street, forecasts have spread that the US Federal Reserve (Fed) will cut interest rates by 0.25 percentage points next month.

On the 12th (local time), the US Department of Labor announced that the October CPI increased by 2.6% compared to the same period last year. This was a 0.2 percentage point rise from 2.4% in September but matched market forecasts. The CPI rose by 0.2% compared to the previous month, which was equal to both the previous month's increase and expectations.

The core CPI, which excludes the volatile energy and food sectors to show the underlying inflation trend, rose 0.3% month-over-month and 3.3% year-over-year. These figures matched those of August and market forecasts. However, some analyses suggest that the core CPI rising by 0.3% for three consecutive months indicates that the Fed still faces risks in fully controlling inflationary pressures.

The acceleration in the CPI increase compared to the previous month was driven by rising food prices and housing costs. Housing costs rose 0.4% month-over-month, contributing more than half of the CPI increase. Food prices increased by 0.2%, with grocery purchases up 0.1% and dining out up 0.2%. Energy prices, which fell 1.9% in September, showed no change in October. Used cars and trucks jumped 2.7%. On an annual basis, housing costs rose 4.9%, food prices increased 2.1%, and energy prices fell 2.9%.

Following last month's CPI release, the market has expanded bets that the Fed will cut rates at the December Federal Open Market Committee (FOMC) meeting. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on that day priced in a 75.7% chance of a 0.25 percentage point rate cut at the December FOMC, a significant increase from 58.7% the day before.

In response to rate cut expectations, US Treasury yields have also fallen. The 10-year US Treasury yield, a global benchmark for bond yields, dropped 5 basis points (1bp=0.01%) from the previous trading day to 4.38%, while the 2-year US Treasury yield, sensitive to monetary policy, declined 7 basis points to around 4.26%.