Forecasts for October CPI Report Show Inflation Progress Stalling for Now

Forecasts for the October Consumer Price Index report show that inflation likely remained steady on a monthly basis in October, reflecting a pause in the good news on price pressures in the economy.

Analysts say falling gasoline prices during the month continued to pull down inflation overall, but rising prices in other areas offset some of that progress.

Investors are watching the data with renewed focus in the aftermath of last week’s presidential election, given the anticipated Republican policy proposals that economists think could exacerbate inflationary pressures. In recent weeks, bond traders have pushed bond yields higher, partly due to concerns about the longer-term inflation outlook.

Overall, economists anticipate that consumer prices rose 0.2% on a monthly basis, according to FactSet’s consensus estimates. That would mean the annual inflation rate rose to 2.6% in October from 2.4% in September. They expect that core inflation, which excludes volatile food and energy prices, rose 0.3%, which would mean annual core inflation held steady at 3.3%.

“The labor-intensive categories as well as shelter remain problematic,” says José Torres, senior economist at Interactive Brokers, who points to price hikes in the transportation services and medical services categories. He expects that prices rose 0.2% in October, in line with consensus. His forecast of 2.5% annual inflation is slightly lower than consensus.

Analysts also point to a spike in used-car prices for October, which will put more upward pressure on core inflation. “In short, inflation is moving sideways after a period of substantial disinflation,” Bank of America economists wrote in a note to clients on Monday.

October CPI Report Highlights

• CPI report release date and time: Wednesday, Nov. 13, at 8:30 a.m. EST
• The CPI is forecast to rise 0.2% in October after rising the same amount in September.
• Core CPI is forecast to rise 0.3% in October after rising the same amount in September.
• The CPI year over year is forecast to rise 2.6% in October after rising 2.4% in September.
• Core CPI year over year is forecast to rise 3.3% in October after rising the same amount in September.

In addition to sticky transportation and medical costs, Torres expects that grocery and restaurant prices rose in October, along with electricity and natural gas prices. Analysts at Goldman Sachs also point to rising car insurance costs.

Inflation Is Down, but Progress Will Be ‘Bumpy and Gradual’

Overall, inflation is lower than a year ago (annual inflation in November 2023 was above 3%), and analysts expect disinflation to continue in the months to come, albeit at a slower pace.

“We still see the inflation trend overall being in a downward channel,” says Kathy Bostjancic, chief economist at Nationwide, whose forecasts are in line with consensus estimates. She says the key to further disinflation will be a reduction in rental inflation, which has remained relatively sticky and is weighted relatively heavily in the index. She adds that future progress on disinflation overall will be “bumpy and gradual.”

Bank of America’s analysts point out that cooling wage growth and a rebalancing labor market mean the medium-term drivers of services inflation remain favorable.

Upside Inflation Risks

Market watchers spent much of last week digesting new risks to inflation in the aftermath of the US presidential election. “While we believe that inflation remains on a disinflationary trajectory, we now see the risks as clearly tilted to the upside,” Bank of America’s economists wrote. “These risks stem from potential policy changes rather than economic fundamentals. Indeed, we see pro-growth fiscal policy, tariffs, and tighter immigration as potential sources of upside inflation risk over the coming years if they are implemented.”

For the past year, inflation overall has fallen despite stickiness in the services category. Torres says tariffs could derail that progress by putting pressure on prices in the goods or commodities categories.

What’s Next for the Fed?

With some components of inflation still running hotter than the Fed’s 2% target and amid expectations of strong economic growth next year, analysts and investors are paring back their forecasts for interest rate cuts. Bond futures markets now see a roughly one-in-three chance that the Fed will leave interest rates steady at its December meeting next month, according to the CME FedWatch Tool. That’s up from 15% odds a month ago.

“Although we see the Fed continuing to cut interest rates in December, it is not a slam dunk,” says Bostjancic. She has reduced her forecast for 2025 from five 0.25% rate cuts to three, for a total reduction of 0.75%. “The economic momentum we now see heading into 2025 is stronger than we forecast,” she says, “and that dampens some of the downside risks to the economy and labor market.”