NEW YORK (Reuters) – U.S. consumer prices increased more than expected in October as the cost of gasoline and food surged, leading to the biggest annual gain since 1990, further signs that inflation could remain uncomfortably high well into next year amid snarled global supply chains.
The consumer price index rose 0.9% last month after gaining 0.4% in September, the Labor Department said on Wednesday. In the 12 months through October, the CPI accelerated 6.2%. That was the largest year-on-year advance since November 1990 and followed a 5.4% jump in September.
STORY:
MARKET REACTION:
STOCKS: S&P e-mini futures extended a slight loss and were last off 0.31%, pointing to a weak open on Wall Street
BONDS: Yields on benchmark 10-year notes rose to 1.4762%. Two-year Treasury yields rose to 0.4869%
FOREX: The dollar index was steady, up 0.31%.
COMMENTS:
BEN JEFFERY, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK
“The most meaningful trend I think is the flattening of the curve, as the market is kind of assuming a more aggressive normalization path from the Fed.”
“What we heard from Powell at his press conference last week seems to suggest that for the time being they’re still crediting the upside in inflation to more supply-side issues, and so they are opting to remain patient until some of those supply-side concerns start to work themselves out in the middle of next year.”
“At this point the flatter curve seems to be pointing to more aggressive Fed action, so I think that’s going to be the primary story probably over the next several months or even the next quarter or two.”
JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL, CHICAGO
“Inflation hawks probably aren’t surprised by this. The inflation came in higher than expected, and bond investors need to be compensated for the purchasing power risk. Already real rates are near record lows. At some point the bond market is going to realize they’ve been a punching bag in this whole market and they’ll demand some kind of compensation.”
RICK MECKLER, PARTNER AT CHERRY LANE INVESTMENTS IN NEW VERNON, NEW JERSEY
“It’s got to be disconcerting for the bond market to see a CPI number like this…What really is the biggest worry is that the bond market reacts to the point where it does finally become some competition for stocks. And I think we’re still a ways away from that. Even though the Fed believes that inflation is transitory, the evidence is starting to add up that that’s not true. But my guess is they’ll stick with their plan, at least for several more months.”
“The data is a negative for the market, but probably not the type of negative it might have been years ago, as retail investors continue to clamor particularly for technology stocks. The Fed has made very few moves outside of what they’ve told the markets they plan to do, but I think even they’ve got to be a little concerned by the strength of the increase.”
PETER CARDILLO, CHIEF MARKET ECONOMIST AT SPARTAN CAPITAL SECURITIES IN NEW YORK
“What do these numbers say? Simply that inflation is going to be long-lasting and structural inflation has picked up speed. These (year-on-year) numbers the highest, I believe, in about 21 years.
“The bottom line is that this is going to be a real challenge for the Fed in the coming months and suggests that inflation has not peaked.
“It’s going to lift the eyebrows of the Fed. Inflation will peak probably in the beginning of the second quarter, and over the next several months the Fed will have to change its tune a little bit and accelerate the pace of tapering.”
GREGORY DACO, CHIEF U.S. ECONOMIST, OXFORD ECONOMICS, NEW YORK
“This report is somewhat concerning in terms of the trend. We had been expecting higher inflation. We had been expecting a bit of a hotter month in October. But this surpassed our expectations. So we’re on a firmer trajectory in terms of inflation. And I think things will continue to get worse before they get better in terms of the inflation outlook because we don’t see core inflation peaking until sometime in early 2022.”
“From the Fed’s perspective, it puts additional pressure to consider earlier tightening of its monetary policy. This does not create an immediate force to lead them to tighten, but it does increase the pressure.”
JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST, NATIXIS, NEW YORK
“It’s clear that the rate of inflation and the persistence of elevated inflation are much more than what policymakers and markets had expected. Counterintuitively, the higher inflation goes the more the market believes this will dent real income and in effect slow the economy, which to me is the wrong way of thinking, but that’s how the market is going to approach this.
“The problem with elevated inflation is the longer you have it, the more likely it becomes ingrained and a the less likely, even with a significant weakening of GDP growth, short of a recession, will change that new dynamic.”
PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW ASSET MANAGEMENT, CHICAGO
“It is not supply, it is demand. The numbers today, US and globally, are showing that what we have is a demand-driven inflation that can be curtailed with higher interest rates and the Fed is behind the curve. They may now be forced into raising rates sooner rather than later.”
“Interest rates are going up, the yield curve is flattening and so growth stocks are relatively poorer performers while value is doing well with better numbers for some of the commodity stocks, financials, healthcare, industrials, basic materials.”
(Compliled by the global Finance & Markets Breaking News team)
