Rapid Response - US rate expectations rise on broadening CPI strength
The Bureau of Labour Statistics published only monthly US CPI data for October due to the government shutdown last year. However, the monthly readings were above expectations and, coupled with comments from FOMC members, led to a sharp increase in bond yields.
Source Bloomberg
US consumer prices rose +0.4% mom in October, according to the Bureau of Labour Statistics (BLS), slower than September's +0.6%, but above the +0.3% consensus. Before seasonal adjustment, it rose by +0.2%.
Core CPI rose +0.3% mom for the third month in a row, against forecasts of +0.2%. 3-month annualised core rose to +3.7%, the highest in more than two years. The six-month annualised rate is +2.7%.
The BLS did not publish annual rates. It said: "BLS did not collect survey data for October 2025 because of a lapse in appropriations… As a result, BLS cannot publish 12-month percent changes for October 2026 for indexes where October 2025 data are unavailable".
However, the CPI index increased by +3.9% compared to September 2025 and by +4.1% compared to November 2025 (not seasonally-adjusted). This is higher than the +3.7% annual increase recorded in September.
Supercore (services less energy and housing) rose +0.4% mom and appears to have been accelerating since August.
The BLS said shelter accounted for "over thirty percent of the monthly all items increase". Owners' equivalent rent rose +0.3%, rent +0.2% and lodging away from home +0.6% (September: +2.0%).
Based on the CPI data, core PCE is expected to have risen by +0.4% mom and +3.3% yoy (September: +3.1% yoy).
Annual PPI data will be published on Friday, with the headline expected to accelerate to +6.6% yoy (+5.0% ex-food & energy).
The release came hours after Federal Reserve Governor Chris Waller said a core reading of +0.3% would put a larger hike on the table.
In other data in the last 24hrs, Australian consumer confidence fell to a 4yr low according to Westpac-Melbourne Institute and NAB business conditions dipped slightly further into negative territory at -2. Chinese imports accelerated from +24.6% yoy to +34.7% yoy in RMB. Exports decelerated slightly from +29.6% in September to +28.7% yoy in October, also in RMB.
S&P500 7,521 -0.38%, Nasdaq Comp. 25,066 -0.74%, S&P/ASX200 future 9,121 -0.44%,
US 2yr 4.74% +18 bps, US 10yr 4.99% +11bps
US dollar (DXY) index 102.24 +0.6%, AUDUSD 0.6866 -0.9%, Gold US$/oz 4,033 -2.6%
Fin-X View
The last move by the Fed in September was described as "removing some degree of accommodation". The FOMC decided to pause in October, with Lisa Cook and Beth Hammack preferring to raise again, while Chair Warsh said that "a rich period of information would help determine the right policy setting".
Difficult to understand at the time and perhaps influenced by the timing of the midterms, the pause in October now appears to have been a mistake.
An important feature of today's report was the signs that the initial price increases attributed to energy are now broadening. Chair Warsh specifically mentioned the breadth of increases above +3% as an important consideration in his Jackson Hole address in August.
A rate increase in December is all but certain but the move could be larger than previously anticipated. FOMC members Chris Waller and Dallas Fed President Lorie Logan have both discussed moving by +0.5% before taking stock. The market is attributing a 10% chance of +0.5%, with the expected end-2027 rate having increased from 4.4% at the end of October to 4.57% after the CPI report. That is +0.79% above today's effective rate.
The entire Treasury curve shifted higher, driven by the short end, with the US 10yr briefly touching 5%.
Disclaimer
The contents of this communication are prepared by Fin-X Capital Group Pty Ltd (A.C.N. 627 650 293; AFSL 520526 trading as Fin-X Capital). The information contained in this communication is general in nature and does not take into consideration any investors personal objectives, goals, needs and financial situation. You should not rely on the information contained in this document to make any investment decisions without first consulting an investment professional such as your financial adviser. Any unauthorised use of this document is prohibited. This document (including any attachments) is intended only for the addressee, it may contain information of a privileged and confidential nature. If you are not the addressee of this communication, you must not copy, reproduce, disseminate or use this email and its contents. If this communication has been received in error by you, please inform us immediately and securely delete. Sharing, transmitting, copying, disseminating all or part of the contents of this document may result in a breach of the Federal Privacy Legislation and or copyright and trademark infringement of Fin-X Capital Group Pty Ltd and its related entities.
