U.S. Inflation Fuels 'Big Step' Talk ... Further Hikes? That's Unclear [Weekend Money]

October CPI Exceeds Market Forecast
High Oil Prices Combine with Resilient Growth
November CPI Data to Be a Key Factor

With an additional interest rate hike by the U.S. Federal Reserve (Fed) in December widely seen as a foregone conclusion, some are even debating whether the Fed could make a “big step.” However, analysts say the Fed is likely to hold rates steady after the additional hike.

Federal Reserve Chair Kevin Warsh. Yonhap News Agency

According to iM Securities, the U.S. Consumer Price Index (CPI) rose 0.4% in October, exceeding the market forecast of 0.3% month over month. Core consumer prices also rose 0.3%, 0.1 percentage point above market expectations. Notably, prices increased not only for the energy index but also across major categories, indicating that both cost-push and demand-driven inflationary pressures are rising.

The most notable pressure came from services prices. Excluding energy services, services prices rose 0.3% in August, 0.4% in September and 0.3% in October, maintaining a high pace of increase. The U.S. Department of Labor said the housing index rose 0.3% in October, accounting for more than 30% of the monthly increase in prices across all categories.

Rising price pressures are also fueling inflation expectations. The one-year inflation expectations rate reported by the Federal Reserve Bank of New York rose to 3.91% in October, slightly above both the market forecast of 3.79% and September’s 3.9%. Analysts say high oil prices and resilient U.S. economic growth are driving up inflation expectations.

iM Securities maintained its existing forecast that the Fed will hold rates steady after raising them in December. “The sharp drop in oil prices as some of the risks related to Iran have eased is expected to have a positive effect on November’s consumer prices. Services inflation may also gradually slow as wage growth moderates,” said Park Sanghyun, an analyst at iM Securities. “The November consumer price data, rather than the October data, will be an important factor in the Fed’s decision on whether to raise rates again.”

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