October Inflation Number Is Incoming Thursday: How The Market Could React

With decades-high inflation becoming the new normal for 2022, investors are watching what the Fed's preferred inflation measure will show when October data is reported later this week. 

On Thursday, The Bureau of Labor Statistics will release the Consumer Price Index report for the month of October. 

With another hike in interest rates of 0.75% issued last week, the Fed is keeping its foot on the gas in the inflation fight. 

October’s results will be key to the central bank's next interest rate decision in December. With added pressure from the midterm election on Tuesday, the markets face a rollercoaster ride this week. 

The Fed is expected to continue to raise interest rates until inflation shows clear signs of cooling down in order to reach its goal of 2% per year.

What Economists Expect From October CPI 

With an annualized inflation rate for September of 8.2%, the country’s inflation continues to remain above the 8% mark since March, with an apparent peak in June and mild decline following after.

The Inflation Nowcast, a real-time inflation estimate provided by the Cleveland Fed, puts October’s ongoing year-over-year rate at a rate of 8.09%. 

If this estimate is correct, October’s inflation number could come out higher than than in September, August and July, pushing the Fed to double down on interest rate hikes and taking the equity markets into uncertainty mode.

Yet Wall Street has much better hopes.

A survey of economists by Bloomberg News puts October’s inflation rate at 7.9%, while the consensus posted by FactSet is set at 8%.

If estimates from the Cleveland Fed are wrong and economist consensus is right, October would show a winding trend from an year-over-year perspective.

From a month-over-month perspective, both FactSet consensus and the Cleveland Fed are expecting October’s prices to have risen by 0.7%.

Core inflation, or the measure of inflation without food and energy prices, is expected to rise 0.5% by both the Bloomberg-surveyed economists and Cleveland Fed estimates.

Projections for where the Fed will park its funds rate are also rising. 

Goldman Sachs warned the rate could reach over 5% by March 2023, while TD Securities, BNP Paribas and Bank of America are all expecting the rate to stop rising at 5.25% in the first quarter of next year, according to Yahoo Finance.

The unemployment rate, another major gauge for recession along with inflation, continues to be strong, giving the Fed more confidence that its hikes on interest are not causing a grave effect on the job market.

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