At 21:30 on Wednesday Beijing time, the USA released the CPI data for October, with a year-on-year CPI rate of 2.6%, matching the expected 2.6%, higher than the previous value of 2.4%, reaching a three-month high and halting the 'six consecutive declines'; the seasonally adjusted CPI monthly rate for October recorded 0.2%, in line with expectations and the previous value of 0.2%.

The core CPI recorded a year-on-year rate of 3.3%, in line with expectations and the previous value of 3.3%; the core CPI monthly rate recorded 0.3%, in line with expectations and the previous value of 0.3%.

After the USA CPI data was released, spot gold short-term rose by 7 USD, the USD index short-term fell by nearly 30 points, and then quickly recovered. Non-USD currencies generally rose, with the Euro against the USD short-term rising by almost 30 points, British Pound against the USD short-term rising by over 30 points, and USD against the Japanese Yen short-term falling by 45 points.

Traders increased their bets on a December rate cut by the Federal Reserve. According to CME's 'FedWatch', the probability of the Fed maintaining the current interest rate in December is 24.3%, with a cumulative probability of a 25 basis point rate cut at 75.7% (prior to CPI release, they were 37.9% and 62.1%, respectively). The probability of no change in the interest rate in January next year is 16.5%, with a cumulative rate cut of 25 basis points at 59.2% and a cumulative rate cut of 50 basis points at 24.3% (prior to CPI release, they were 26.5%, 54.9%, 18.6%).

Fed's Kashkari stated, 'The overall data in the CPI report confirms our current trend.' Not yet ready to declare that inflation will stay above the 2% target, with no clear signs of significant upward inflation risks; the bigger risk is that the economy could stagnate. The labor market is in good condition, hoping to maintain this status. Higher productivity points to higher neutral interest rate levels.

Analyst Enda Curran stated that as expected, housing costs remain the biggest source of inflation. The Bureau of Labor Statistics reported that housing accounted for more than half of the monthly increase in all items for October. The October auto insurance index slightly decreased, but still 14% higher than a year ago.

A closely watched indicator measuring housing costs accelerated growth last month, with the Owner's Equivalent Rent (OER) for measuring homeowner housing costs rising by 0.4%, up from September's 0.3%. Analyst Chris Anstey stated that due to mortgage rates no longer declining, housing costs may have difficulty showing a clear trend of inflation slowdown for a period of time.

Although the CPI data meets expectations, there are signs indicating further improvements in the future. Brian Jacobsen, Chief Economist at Annex Wealth Management, stated that durable goods prices fell by 2.5% year-on-year, while non-durable goods prices dropped by 0.5%. Service industry inflation remains high but is no longer accelerating. The inflation risks associated with potential tariff, deficit, or immigration changes are vague and uncertain. This is not a major concern until we have more details about what may happen.

While the market may find the slight increase in prices reassuring, it is worth noting that the 0.3% core CPI increase keeps the inflation trend higher than the Federal Reserve's 2% target. This report brings good news for the Federal Reserve as the so-called "super core" service index, excluding housing costs, had its smallest increase in three months in October, with a 0.31% rise slightly below this year's average of 0.35%.

The Wall Street Journal pointed out that despite stable inflation data, Federal Reserve officials currently still have the possibility of cutting rates by another 25 basis points at the last meeting of the year next month. This is primarily because, despite some ups and downs, inflation still seems to be cooling off. In addition, there is still a certain level of 'catch-up inflation' in the data. Fed officials also believe that the current level of short-term interest rates is restrictive, meaning that if rates are not cut further, the labor market may cool more than expected, potentially posing a risk of economic slowdown.

The Wall Street Journal also added that the U.S. Labor Department will release the next consumer inflation report on December 11, a week ahead of the Federal Reserve meeting. If the data shows significantly stronger figures than Fed officials hope for, they might choose to temporarily pause further rate cuts. If the November employment report, scheduled for release on December 6, reveals a rebound in employment, confirming that last month's slowdown was merely a reflection of hurricane and strike-related issues, this would be even more significant.

Discontent with inflation helped Republican Donald Trump win last week's presidential election against Democratic candidate and Vice President Harris. However, economists predict that if Trump continues to pursue his economic policies, including tax cuts and higher tariffs on imported goods, next year's inflation rate will rise. Additionally, Trump has vowed to carry out mass deportations of illegal immigrants, which economists say will reduce the labor supply, increase business costs, and then pass on to consumers. Despite the Fed's expected rate cut in December, economists believe there is limited room for further rate cuts next year.

Editor/Lambor