Thanks to Edward Jones Weekly Market Update1
October inflation cools – The start of a trend lower?
Last week’s cooler-than-expected inflation data offered some relief to investors and the Fed, potentially indicating that October could be the start of a disinflationary trend that lasts through next year. The headline consumer price index (CPI) reading was up 7.7% from a year ago, the smallest annual increase since January, and down from September’s 8.2% pace. More importantly for the Fed was that the core index, which excludes food and energy, slowed more than expected, advancing 0.3% from the prior month (vs. 0.6% in September) and 6.3% from last year (vs. 6.7% in September). Stripping out shelter, core CPI fell 0.1% last month, marking the first decline since May 20201.
In response to the CPI surprise, stocks surged, Treasury yields sank, and the dollar weakened, showcasing once again that inflation remains the No. 1 driver of market outcomes this year. We offer our take on the recent data, along with implications for Fed policy and investment strategy.
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