Erik Norland, CME Group
AT A GLANCE
- US CPI inflation eased to 7.7% in October from 9.1% in June.
- The labor market remains very tight, the average hourly wage is still growing by almost 5% per year.
Can inflation finally be eased?
In the past year and a half, inflation has skyrocketed throughout the western world. But finally, on November 10th, we got some good news: US inflation softened unexpectedly in October, coming in 0.2% below expectations. The markets were happy. Bond yields collapsed and stocks rallied.
Headline CPI inflation has now slowed to 7.7% in October from 9.1% in June. But much of the reason for the overall CPI weakening comes from energy prices, which have fallen in recent months.
Meanwhile, the core inflation story is not so positive. Excluding food and energy, the CPI fell to 6.3% from 6.6% year-on-year.
The largest single component of inflation is housing, specifically rent and owner-equivalent rent. And housing costs continue to climb, rising nearly 7% year over year.
The job market is slowing but remains very tight, with average hourly wages still growing at almost 5% a year. But even after the economy has returned to full employment, employers still want to hire an additional 10.7 million workers – far more than before the pandemic.
So it might be a bit premature to celebrate inflation moderation.
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