US consumer prices set to have risen again in October

US consumer prices are set to have jumped once again in October as inflationary pressures seep into an ever-broader range of sectors, bolstering the Federal Reserve’s plan to press ahead with its tightening campaign.

The consumer price index is expected to have risen by another 0.6 per cent last month, according to a consensus estimate compiled by Bloomberg, up from 0.4 per cent in the previous period. Despite the monthly acceleration, the annual pace is forecast to have slowed to 7.9 per cent, down from 8.2 per cent.

Once items such as food and energy are stripped out, “core” CPI is set to have risen 0.5 per cent, just shy of the 0.6 per cent pace recorded in September. Compared to the same time last year, it would be up 6.5 per cent.

The data, set to be published by the Bureau of Labor Statistics on Thursday at 8:30am Eastern Time, comes on the heels of unexpectedly tight midterm elections that left the battle for control of Congress still hanging in the balance.

High inflation has dogged Joe Biden’s administration for the bulk of his presidential term, igniting fears of a pronounced economic downturn at some point next year as the Fed steps up its efforts to get price pressures under control.

Jay Powell, Fed chair, signalled last week that the central bank would likely need to lift interest rates to a higher level this tightening cycle than initially expected as it grapples with an economy that has proven resilient in the face of rapidly rising interest rates.

Most economists now expect the so-called terminal rate to eclipse 5 per cent next year, well above the 4.6 per cent level projected by most Fed officials as recently as September. To get there, officials have begun to lay the groundwork for smaller rate rises, having increased rates by 0.75 percentage points at each of its four previous meetings.

At the press conference that followed the November gathering, at which the Fed lifted its benchmark policy rate to a target range of between 3.75 per cent and 4 per cent, Powell said the central bank could scale back the pace of increases at the December meeting or the one after that.

While officials have previously said they needed to see a slowdown in the inflation data before they could alter course, they are now more directly taking into account how much rates have already risen this year and the fact that it takes time for those adjustments to affect the economy. As a result, less emphasis is placed on each subsequent CPI report.

“We do need to see inflation coming down decisively and good evidence of that would be a series of down monthly readings,” Powell said last week. “But I’ve never thought of that as the appropriate test for slowing the pace of increases or for identifying the appropriately restrictive level that we’re aiming for.”

He has repeatedly warned that the higher rates need to rise and the longer they stay at a level that is constraining economic activity, the greater the odds of the economy tipping into a recession. Most economists now expect a contraction next year, with the unemployment rate rising substantially above its current 3.7 per cent level.