CPI report: Inflation rises 0.4% in October, showing signs of cooling

Yahoo Finance Live’s Jennifer Schonberger, Brian Sozzi, and Brad Smith break down the October CPI print.

Video Transcript

BRIAN SOZZI: Here are three things you need to know right now. As we just mentioned, Inflation is showing signs of cooling. The October CPI index coming in at a headline reading of 7.7% year-over-year. Core inflation rose 6.3%. Yahoo Finance's Jennifer Schonberger has more. Jen?

JENNIFER SCHONBERGER: Good morning, Brian. The Consumer Price Index clocking in still quite hot, but cooling from previous months, perhaps in a sign that inflation is beginning to moderate. Those numbers coming in below expectations. Month-over-month, that CPI headline rising 0.4% versus the estimate of 0.6%.

CPI core, which excludes those volatile food and energy prices, rose 3/10 of a percent versus 0.5% expected. I want to contrast that with the monthly increases of 6/10 of a percent both September and August. So up 0.3% in October, clearly cooling a bit there.

Now, on a year-over-year basis, that headline number up 7.7% versus the estimate of 7.9%. The core up 6.3% versus the estimate of 6.5%. I want to take a look at core CPI year-over-year going back to July because that's going to give you the trend. So we see it clocking in at 6.3% just last month. That's down from 6.6% in September, coming back to the levels that we saw previously earlier in the summer, but still higher than the 5.9% in July.

So what's driving all of this? Rents. They are very sticky. The index for shelter contributed to over half of monthly all items increase, with the indexes for gasoline and food also increasing.

I want to zero in on energy and food. The energy index increased 17.6% for the past 12 months while the food index was up nearly 11%. And while these are hefty increases, they were smaller than in September. We paid 12.4% more for our groceries over the past 12 months measured, oh, I should say, on a year-over-year basis versus an increase of 9% with meals we eat out. So that's a bit of a reversal in the trend that we are seeing, where we were paying more in the grocery store than we were for eating out in restaurants. So perhaps a good sign there.

Bottom line here, guys, inflation still an issue, but showing signs of cooling, especially on a monthly basis. And while this is a lagging indicator, the Fed clearly going to take this into account in their policy deliberations for December. We will get another reading, though, on CPI when officials commence that meeting in December, though right now it looks like this could vote for a 50-basis-point rate hike versus the 75. Back to you.

BRIAN SOZZI: Jen Schonberger, thanks so much. Brad, Jen called out the food and home index of 12.4% over the past 12 months. Cereals and baking goods up 16%. So I understand the market's enthusiasm because, like Jen mentioned, maybe this moves the Fed off of those 75-basis-point rate hikes to something along the lines of 50 basis points and maybe a series of 25-basis-point rate hikes in early next year. But still, American households are dealing with major inflation. And they're not spending at the same pace they were earlier in the year because of this inflation.

BRAD SMITH: Well, this is the first step. And it's a critical one, right, because the Fed is going to be looking for consecutive readings like this to really get a sense that their policy has really been ingested by the economy, and that also in their price stability measures that that's taking hold more fully here. So this is a big step in the right direction.

And in some of the key categories that we were breaking down-- Jen ran through food, as well as some of the other necessities, housing amazingly critical. And I'm glad she pointed that out. But in some of the other categories that you're looking at on your screen, where you actually saw used cars come down month-over-month, 2.4%. You saw apparel come down 7/10 of a percent.

All of these moves in the tick lower are going to be critical to see how that continues to add on, even in some of the energy costs that consumers are seeing. If all of that continues to tick in the right direction and not only shows that the Fed's policy is actually being adjusted, but also for consumers it might signal a little bit more confidence in at least the hope that there is some stability that is on the forefront for prices that they're paying right now.

BRIAN SOZZI: Yeah, right, Brad. I would just, I understand the market's reaction here. I would just caution everyone just to keep in mind this is still a Federal Reserve that is not friendly. And it is unclear when they will again become a friendly Fed.

And what do I mean by that? I mean a friendly Fed is one out there saying they're not going to be raising interest rates anymore and that they might actually look to cut them. That isn't expected until maybe, maybe the latter half of next year, early 2024.

BRAD SMITH: Yeah, this Fed has not been the market's friend, but for good reason. They got a tough mandate. And it's going to be difficult to really see a lot of fanfare coming about when you're continuing to say, you know what? We're just going to go straight on the path ahead until we get a strong sense that our dual mandate of maximum employment and price stability has been met.

BRIAN SOZZI: But it's good to see the Fed bringing down my food bill slowly, Brad. It's good. I'll take it. I'll take it.

BRAD SMITH: Thank Jerome. All right.