US October CPI Preview

October Inflation may be below expectations

The US October CPI data will be announced tomorrow. This is the first of the four data points that will influence US Fed monetary stance at their December meeting. The expectation is for October CPI to be at 7.9%, compared to 8.2% in September.

Here are some insights:

• Oct CPI of G20 Countries
• Leading indicator from Crude Oil
• Leading indicator from S&P 500 Index (8-months lag)
• Leading indicator from M2% YOY (16-months lag)

Oct CPI of G20 Countries

So far, five G20 countries have reported the October CPI. No country beat the estimates. Only South Korea CPI is equal to the estimates of 5.7%. All countries have reported MOM decline in CPI.

Leading indicator from Crude Oil

WTI Crude Oil Price has declined 23% from a high of $115 in May 2023 to $88. Hence, inflation could head lower, based on WTI Crude oil prices.

Leading indicator from S&P 500 Index (8-months lag)

S&P 500 Index has declined 20% from a high of 4766 in June 2022 to 3828. Hence, inflation could head lower, based on S&P 500 Index (8-months lag).

Leading indicator from M2% YOY (16-months lag)

M2% YOY has declined 90% from a high of 26.9 in June 2022 to 2.6. Hence, inflation could head lower, based on M2% YOY (16-months lag). This is also an indicator used by Morgan Stanley Research.

Previously, I wrote that the Fed is pragmatic to be data-dependent (see the article below). Hence, this upcoming October CPI will provide clues on whether the Fed should be more hawkish or less dovish.

Bloomberg published an article on CPI Game Plan crafted by JPMorgan’s Trading Desk. Here they displayed possible outcomes, based on the Oct CPI.

While there is a likelihood that inflation may not be as high as expected, we believe that there are still downside risks to the markets given the stress in cryptocurrency markets and potential stagflation risks.