October's Consumer Price Index: Lower Inflation Impact | Episode 071 | 11-14-23

In the latest episode of Markets with Megan, Verdence Capital Advisors' Chief Investment Officer, Megan Horneman, provides her insights on the October Consumer Price Index release. The report revealed lower-than-expected inflation, with the headline CPI remaining flat for the first time since July 2022. Megan talks about the decline in vehicle prices, used cars, airfares, and a significant drop in gasoline prices as contributors. Both stock and bond markets responded positively, signaling the market's confidence that the Federal Reserve may maintain its current stance in December without further adjustments. She also focuses on the ongoing need for progress in addressing persistent challenges, in areas like sticky inflation related to wages and services.

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with our regular segment of Markets with Megan, and we're talking about the October release of the Consumer Price Index. This is the reading on inflation in the economy. It's a very well-followed market economic report as well, as it has impact on what the Federal Reserve may do. So what we saw this morning is that inflation came in actually lower than was anticipated. We actually saw the first time the headline CPI report came in flat, so the prices did not change on a month-over-month basis. That was the first time since July of 2022. And when you exclude those volatile items like food and energy, on an annual basis inflation rose 4% and that is actually the slowest annual gain that we've seen since September of 2021.

Now, digging into some of the other details in this report, some of the declines that we saw so actually prices decreased on a month-over-month basis were in vehicles, used cars, airfares. The big decline on the headline level was gasoline. We had anticipated we'd see some upside in energy prices, given the conflict in the Middle East, which is not really materialized, and we've seen gasoline prices decline on a month-over-month basis. That really helped that headline number come in flat or no change in prices. The market is taking off on this report, both stocks and bonds. We're seeing stocks up significantly higher on this report, as well as bond prices higher and yields declining. The reason behind this is that the market's expecting the Fed now can stay on hold in December. They won't have to do any other adjustments to monetary policy this year. This is a good report. It's still not great. We still have a long way to go for inflation, but it is a good report. It's trending in the right direction.

We've often said that parts of the inflation that are much difficult to get through where we can get to that 4% on an annual basis of price gains, but difficult to get to 2% is what we call that sticky inflation. We need to get some more information from the wage pressures. These are sticky. Services service prices these are sticky, as well as the housing component. In this we did see owner's equivalent rent, which is a huge portion of the consumer price index. That did actually moderate a little bit.

Still high and still growing over 6% on a year-over-year basis. That's a little too high for the Federal Reserve. We want to see some more improvement in this before we can officially say the Fed will not have to do any more minor adjustments to monetary policy, meaning that they might have to raise again in 2024. They have made it very clear that their goal is to get inflation down and they will sacrifice the economy in order to do that. We'll keep an eye out. There's a lot more information coming out this week on the consumer as well as inflation. We'll be back with some more information as we have it. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you.