Bassanese Bites: Inflation shock – October 17 2022
Week in review
The obvious highlight of the past week in global markets was the higher than expected US CPI result, which has likely cemented the case for yet another 0.75% Fed rate hike at the early November policy meeting. The US market is now toying with the idea that the Fed could take rates as high as 5% by mid-2023.
Headline consumer prices rose 0.4% in September, compared with an expected rise of 0.2%, whereas core (i.e. excluding food and energy) rose 0.6% – or only a touch higher than the 0.5% expected by the market. At 6.6%, core annual inflation stands at a 40-year high.
Although the inflation numbers can be cut and sliced in any number of ways, the essential story is that while goods inflation is subsiding after the past year’s surge, service inflation – which is a far larger part of the CPI – remains sticky, thanks in large part to still strong consumer spending and rising labour costs.
