Today’s October CPI report reveals a slight but expected inflation increase, with the headline CPI rising 0.2% month-over-month and 2.6% year-over-year. Despite the uptick, cooling trends in the labor market and easing cost pressures in shelter and auto insurance suggest inflation could stay in check—good news for investors seeking stable financing conditions in the months ahead.
Key Insights:
Food and Energy: Food prices climbed 0.2% m/m, though at a slower rate than in September. Energy costs stayed flat as declines in gasoline and fuel oil were balanced by increases in electricity and utility gas. This stability could help steady inflation expectations.
Vehicle Prices: Core goods prices held steady overall, with used vehicle prices jumping 2.7% m/m, the fastest pace since May 2023. However, high auto inventories relative to sales suggest used vehicle price increases may cool soon. Meanwhile, apparel prices dropped 1.5%, their weakest print since 2020, driven by unseasonably warm weather—indicating that some recent inflation drivers are likely temporary.
Shelter Costs: Shelter inflation rose 0.4% m/m, with owners’ equivalent rent and rental costs both climbing. Shelter alone accounted for more than half of October’s total monthly CPI increase. Yet, real-time rent data hints at easing pressures in the coming months, offering hope for a gradual moderation in housing-related inflation.
Core Services (Excluding Housing): Core services inflation, which has been a persistent inflationary force, eased slightly to 0.3% m/m, although annualized rates edged up. Transportation services costs showed mixed signals, with auto insurance prices dropping 0.1% m/m, a welcome decrease given their past role in higher inflation. However, airfares recorded their third consecutive month of increases above 3%, likely due to seasonal trends and stronger holiday travel demand.
Market Implications: The report aligns with expectations, and the market’s reaction has been slightly dovish, with an 82% implied probability of a December rate cut now priced in. Policy uncertainty following last week’s election results has added some volatility, but markets remain optimistic about the Federal Reserve’s ability to cut rates gradually.
Investor Takeaway: This report supports a stable outlook for real estate financing as rate cuts look more likely. While proposed tariffs and wage pressures could add some inflationary pressure, continued improvements in auto insurance, shelter costs, and labor market dynamics suggest a tempered inflation path that could benefit the commercial real estate sector in 2024.
