The latest figures from the Consumer Price Index (CPI) report are due tomorrow, and inflation is expected to remain high.
Forecasters expect it to barely dip below the 8% year-over-year rate it has hovered over since March.
In particular, inflation is forecast to be 7.9% year-over-year as of October, according to a median forecast of 52 economists surveyed by Bloomberg News. Banks including Citigroup, Deutsche Bank, JP Morgan Chase and Wells Fargo have similar estimates.
That̵[ads1]7;s only slightly less than September’s 8.2%, and well above the Federal Reserve’s target rate of 2%.
If that happens, it is likely to dampen hopes that the central bank will ease further interest rate hikes over the next few months. That means borrowing costs will continue to rise for consumers, and things like car finance, credit cards and other loans will become more expensive.
“If we consider that improvement, it sets a low bar,” said Greg McBride, chief economist at financial services firm Bankrate. “We’ve been fooled several times into thinking we’re starting to turn the corner only to see inflation rise again.”
While a decline in the inflation rate would be good news, it would take a number of consecutive months of steady declines before we can say inflation is under control, says McBride.
Core inflation remains untamed
The steady rise in core inflation at 6.6% year-on-year remains a pressing concern. Core inflation is a broad measure of all consumer prices, except for food and gas, which tend to be more volatile.
Far from abating, core inflation is expected to have increased by a further half a percent, following an increase of 0.4% in September.
“Annual core inflation has increased over the past three months and is running at its hottest pace in 40 years,” says McBride.
The Federal Reserve has “a ways to go” to bring down inflation, Fed Chairman Jerome Powell said, referring to last month’s inflation data. This will hopefully happen through continued interest rate increases, which discourage spending.
If Thursday’s report is worse than expected, the prospect of another “jumbo” 0.75 percentage point rate hike in December is more likely. Most forecasts currently assume a December rate hike of 0.5 percentage point, with the probability at 52% Wednesday afternoon, according to the CME FedWatch Tool, which measures rate hike probabilities.
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