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Economic Report: Watch for CPI to show monthly inflation increase in October but possible cooling of price gains vs. year-ago benchmarks

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Inflation in the U.S. likely rose sharply again in October, but the latest look at the cost of living might also show a few signs of easing price pressures.

Here’s what to watch in the consumer price index on Thursday morning.

Headline CPI

The rate of inflation probably rose 0.6% last month after a 0.4% increase in September, economists polled by the Wall Street Journal forecast.

Gasoline prices moved up for the first time in four months after putting downward pressure on the headline number since midsummer.

Still, the increase in the prices index over the past year is expected to slide to 7.9% from 8.2% and a 40-year high of 9.1% in June.

It would be the first time the yearly rate has fallen below 8% since February.

The ‘core’ of inflation

The Federal Reserve prefers to strip out gasoline and food prices to get a better sense of underlying inflation trends. The so-called core rate of inflation is seen rising 0.5%, a tick below the increase in the prior month.

The 12-month increase in the core rate is likely to dip to 6.5% from a 40-year high of 6.6%.

Mind you, the Fed is not ignoring gas and food. It knows these are staples on which households spend a lot of money, but those prices often rise and fall quickly, as has been the case with gas in the last year and a half.

The cost of goods

The increases in the prices of goods such as clothes, appliances and new and used cars have slowed since the summer and are helping to ease inflation pressures.

Overall goods inflation, minus food and energy, rose at a 6.6% yearly rate as of September, just half as fast compared to seven months ago.

Services more pricy

Yet the cost of services omitting energy have accelerated to a 6.7% annual pace from less than 4% at the end of 2021.

This is a big problem for the Fed since services — retail, travel, recreation, health care, finance and so forth — represent a bigger portion of the economy than goods.

This is also where rising wages are adding to inflation pressures. Wages make up a great share of the cost of service companies compared to manufacturers.

Health care quirk

The cost of medical care has surged after a lull early in the pandemic, but part of the increase might stem from the method by which government statisticians estimate the cost of health insurance.

New figures from health insurers are likely to show costs haven’t risen quite as fast as previously reported.

If the revision is big enough, the core CPI could slow even more than expected and give financial markets
DJIA,
-1.95%

SPX,
-2.08%

a boost.

“This methodological quirk … could make core CPI inflation look softer than is actually the case over the next several months,” said Richard Moody, chief economist of Regions Financial.

Fed reaction

The Fed is unlikely to find much solace in the October inflation report. The increase in prices is slowing, to be sure, but not fast enough to ease worries about high inflation.

The Fed is expected to remain on track to boost its benchmark interest rate by another half percentage point in December.

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