A high-stakes inflation report due on Thursday is expected to show that the battle to bring stubbornly high consumer prices under control has a long way to go.
The Ministry of Labor releases the long-awaited consumer price index (CPI) report on Thursday morning, giving a fresh look at how high inflation was in October.
Economists expect the gauge, which measures a basket of goods including gasoline, health care, groceries and rent, to show that prices rose 0.6 percent from last month — up from 0.4 percent in September. On an annual basis, inflation is estimated to have climbed by 8%.
The report is likely to show underlying momentum in inflation as house and rental prices rise higher. Core prices, which exclude the more volatile measures of food and energy, are expected to rise 0.5% from last month and 6.5% from the same time last year.
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While consumers have recently received some relief from inflation in the form of lower gas prices, the latest CPI reports are likely to show that food and rent costs have skyrocketed. It is a worrying development because higher housing and food costs hit the most directly and acutely household budgets.
“It is not just the ongoing rate of increase that is troubling, but the prevalence of rising prices across different expenditure categories that has hurt household budgets,” said Greg McBride, financial analyst at Bankrate.
The report will also have significant consequences for Federal Reservewhich is tightening monetary policy at the fastest rate in decades as it tries to cool consumer demand and reduce out-of-control inflation.
Policymakers in October approved a fourth consecutive rate hike of 75 basis points, lifting the federal funds rate to a range of 3.75% to 4% — well into restrictive levels — and indicating more hikes are coming.
Wall Street’s growing expectation is that the Fed will trigger an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with runaway inflation.
“The chances of a soft landing are likely to diminish to the extent that policy will need to be more restrictive or restrictive for a longer period of time,” Fed Chairman Jerome Powell said last month. “Nevertheless, we are committed to getting inflation back to 2%. We believe that failure to restore price stability will mean far greater pain.”
If inflation data for October comes in hotter than expected, it could increase the odds of an even steeper rate hike when the Fed meets in December and a more aggressive central bank in the coming months.
“Despite half a dozen rate hikes by the Federal Reserve, any broad-based, significant and sustained easing of inflationary pressures remains elusive,” McBride said. “As a result, Fed Chair Jerome Powell says there is a ‘way to go’ in raising interest rates to a level that dampens demand enough to stop inflation.”
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The Fed also monitors other economic indicators, including job growth and consumer inflation expectations. In a potentially worrying sign, job growth has been at a healthy pace, despite the central bank’s efforts to cool the labor market.
“We still have some way to go,” Chairman Jerome Powell told reporters last week. “And incoming data since our last meeting suggests that the final rate level will be higher than previously expected.”