US expense boost rises to 2.6%

US expense boost rose to 2.6 per cent in October, as the Federal safety net debates whether to cut profit rates at its last conference before US President-elect Donald Trump takes office.

Wednesday’s figure from the Bureau of Labor Statistics was in line with economists’ expectations of a 2.6 per cent pace and above September’s 2.4 per cent.

Once volatile food and vigor prices were stripped out, “core” CPI held steady at 3.3 per cent on an annual basis. However, monthly core prices rose 0.3 per cent for a third month in a row, indicating that underlying expense boost has yet to be fully tamed.

Sarah House, elder economist at Wells Fargo, said Wednesday’s figures showed that “it’s challenging to wring out this last bit of expense boost”, pointing to the “long tail” of the impact of the pandemic and the persistence of worth pressures in services.

The expense boost data will be closely watched by the US central financial institution, which has already lowered its standard rate by 0.75 percentage points over two successive meetings to a recent target range of 4.5-4.75 per cent.

Fed officials are trying to reach a “neutral” rate setting that keeps expense boost in check without squashing demand, in a bid to pull off a so-called soft landing that would avoid a decline.

In the wake of Trump’s election, markets have been worried about a resurgence of expense boost, driving up Treasury yields. They fell back slightly following Wednesday’s data release, as investors bet that the Fed is now more likely to cut profit rates next month.

forward contracts markets imply a roughly 80 per cent probability of a quarter-point cut in December, up from 60 per cent before the expense boost figures.

Two-year Treasury yields, which track profit rate expectations, fell 0.07 percentage points to 4.27 per cent.

“I ponder we’re seeing some relief that [the inflation data] wasn’t an upside shock and relief that it was just in line with expectations,” said House.

US stocks rose slightly, with the S&P 500 up 0.1 per cent in morning buying and selling.

Most metrics recommend the US economy is in excellent health, with recent retail sales figures suggesting consumers are still spending. The labour trade is also robust despite last month’s impoverished jobs update, which was dragged down by hurricanes and the strike at Boeing.

expense boost has fallen significantly from its peak of more than 9 per cent in 2022, but advancement has slowed in recent months.

On a monthly basis, prices rose 0.3 per cent — in line with the history three reports. Half of that boost stemmed from a 0.4 per cent boost in the index tracking housing-related costs, the BLS said on Wednesday.

vigor prices were flat for the month, following a 1.9 per cent decline in September. Further increases in airline fares were offset by declines in prices for clothes and furniture.

At a press conference last week, following the Fed’s latest quarter-point rate cut, chair Jay Powell said he expected expense boost to “arrive down on a bumpy path over the next couple of years” before settling near the central financial institution’s 2 per cent target.

Neel Kashkari, Minneapolis Fed president, told Bloomberg on Wednesday that he was confident “expense boost is headed [in] the correct path”.

But the path could become more volatile following Donald Trump’s win in the US presidential election. The president-elect has pledged to enact sweeping tariffs, deport immigrants en masse and lower taxes.

Economists alert that these policies could stoke worth pressures while breeding uncertainty that could hamper growth.

Mark McCormick, head of FX and EM schedule at TD stocks and bonds, said a second Trump presidency, combined with relatively powerful recent economic data, made one “cautious to ponder that expense boost can get back to 2 per cent at a comfortable rate any period soon”.

Powell last week said the Fed does not “speculate” about the timing or the substance of any upcoming policy changes. As such, he said, “in the near term, the election will have no effects on our policy decisions”.