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By Mary Mannion

Senior Associate, J.P. Morgan Wealth Management

By Mary Mannion

The Bureau of Labor Statistics' (BLS) October 2023 Consumer Price Index (CPI) report revealed cooling headline inflation.1

“As expected, year-on-year headline inflation fell from 3.7% in September to 3.2% in October on the back of a 2.5% decline in energy prices,” said Shawn Snyder, Global Investment Strategist for J.P. Morgan Wealth Management. “Gasoline prices dropped by 5% during the month, providing the consumer some needed relief.”

Core inflation, which strips out the highly volatile food and energy components, was 0.2% higher in October after rising 0.3% in September. Core inflation “remained more sticky with the year-on-year percent change falling from 4.1% to 4.0% in October,” Snyder said. “Shelter prices, which are one of the largest components of core inflation, remained elevated at 6.7% year-on-year, but they have been gradually declining. We expect that trend to continue for some time.”

Key components

The moderation in inflation was attributed to several key factors. Most notably, oil prices have witnessed a clear decline from their late September peaks. Furthermore, inflation for used cars and trucks also showed price declines month-over-month. The most significant price level increases were in housing and food away from home.

The broader energy index fell by 2.5% over the month, largely due to a 5% decline in the gasoline index, even though other energy component indexes experienced increases. Other indexes that decreased in October included lodging away from home, used cars and trucks, communication, and airline fares.2 This stabilization is critical, as it should take some pressure off policymakers and consumers.

Food inflation, a critical component of CPI, saw a modest increase of 0.3% in October, slightly higher than the 0.2% rise in September. Breaking this down further, the index for food at home increased by 0.3%, while the index for food away from home rose by 0.4%, indicating a consistent upward trend in food prices, albeit at a slower pace.3

How sticky will the current level of inflation prove to be?

“It might be surprising, but inflation excluding shelter prices is now up just 1.5% year-on-year,” said Snyder. “Excluding food, energy and shelter prices, inflation is now just 2% higher year-on-year. While it is likely still too early for the Federal Reserve to declare victory against inflation outright, inflation appears to be trending in the right direction and that should keep additional rate hikes off the table.”

Overall, inflation has been trending down. “The key question moving forward is whether this downtrend in inflation will be accompanied by slowing economic growth,” said Snyder. “Early indicators seem to suggest that growth will moderate towards the end of the year and into early 2024.”

Next Fed steps?

The Fed continues to face the challenge of managing inflation without exacerbating a potential economic downturn.

“In general, we think the Fed will see the risks of sticky inflation and slower growth as fairly balanced and will decide to remain on pause for the indefinite future as restrictive rates do their work,” said Snyder.

The next Federal Reserve Open Market Committee (FOMC) meeting is scheduled for December 12–13.

References

1.

Bureau of Labor Statistics, “Consumer Price Index Summary” (November 14, 2023).

2.

Ibid. 

3.

Bureau of Labor Statistics, “Table 2. Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by detailed expenditure category” (November 14, 2023)

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