Inflation in the United States continued to cool in October, with headline Consumer Price Index (CPI) printing at 3.2%. This is an improvement from September\u2019s 3.7% and better than consensus forecast of 3.3%. Core CPI also continued its downtrend and cooled to 4.0% from 4.1% the previous month. On a month-on-month basis, core CPI remained virtually unchanged and beat analyst estimates of a 0.1% MoM change.<\/p>\n\n\n\n
We expect the steady but moderate pace of disinflation to continue without further intervention from the Federal Reserve. However, we still see pockets of stickiness, particularly in housing and shelter costs which remained stubbornly high at 7.2%. Price increases in food away from home (+5.4%) also continued to diverge from food at home (+2.1%), underlining the continuing demand distortion in the wake of pandemic-era disruptions. The same could be said of the automotive industry, with motor vehicle insurance costs up by 19.2% and motor vehicle repairs up by 15.1%.<\/p>\n\n\n\n
Markets are pricing in no further rate hikes from the Federal Open Market Committee until the end of the year, with CME Group\u2019s FedWatch tool placing a 99.8% probability of no change to policy during the December 13 FOMC meeting. <\/p>\n\n\n\n
However, the probability of a first rate cut is still priced around May\/June after being pushed back from March when inflation spiked in August. The Fed seems to have hit that Goldilocks spot of slow and steady disinflation coupled with mild moderation of economic activity, and they seem to be willing to wait it out rather than risk a recession. <\/p>\n\n\n\n
As such, we maintain our stance of a \u201chigher for longer\u201d interest rate environment both in the United States and here in the Philippines.<\/p>\n\n\n\n