Market participants are bracing for Thursday’s CPI inflation data for October

On Thursday, November 11 at 8:30 EDT, the BLS (Bureau of Labor Statistics) will release the latest inflation report vis-à-vis the CPI index for October 2022.

While many analysts and market participants are expecting (hoping) that the Federal Reserve will begin a pivot from dramatic and strong rate hikes at each FOMC meeting to a pause in hikes during the first half of next year. The sad truth is that the most current forecast is indicating that inflation remains entrenched with the CPI above 8% and the PCE above 6%.

The PCE is still over three times the Fed’s target of 2%. Americans and citizens globally are acutely aware that inflation remains entrenched, persistent, and high as their data comes directly from the prices they are paying for goods and services.

The most current and accurate data on inflation comes from the Federal Reserve Bank of Cleveland’s Inflation Nowcasting. The Federal Reserve Bank of Cleveland releases estimates or forecasts daily for both the PCE and CPI. The numbers and graphs listed are the latest forecasts by the Fed created today.

According to their website, “The model relies on relatively few variables and is tested using real-time data. The model’s nowcasting accuracy improves as information accumulates over the course of a month or quarter, and it easily outperforms a variety of statistical benchmarks.”

The image above is the latest figures for both November and October 2022. Inflation Nowcasting is currently indicating that the CPI (Consumer Price Index) is up 0.76% month-over-month for October and 0.71% month-over-month for the first week of November. It also shows that inflation continues to be persistently over 8% with the CPI currently at 8.09% year-over-year for October as well as November.

Gold futures are trading fractionally higher. As of 4:12 PM EST gold futures basis, the most active December contract is fixed at $1678.20 after factoring in today’s net gain of $1.60. Today’s fractional gain would have been a deep decline had it not been for dollar weakness moving gold into the positive territory. Gold’s gain was a fractional 0.10% while the dollar index is currently down 0.66% and fixed at 110.04.

The screen print above was taken at 4:41 PM EST with spot gold fixed at $1674.50 which is also showing a net decline of $8.20 today. On closer inspection, the Kitco Gold Index (KGX) reveals that normal trading decreased the cost of gold by $16.95, and a weak dollar added $8.75 of value curbing some of today’s price decline.

It is still too early to predict what the Federal Reserve will do at the December 14 FOMC meeting. However, according to the CME’s FedWatch tool, Fed fund futures traders are split almost equally between whether or not the Fed will raise rates by 50 or 75 basis points. There is a 52 % probability that the Federal Reserve will raise rates by 50 basis points and a 48% probability that the Fed will raise their benchmark rates by 75 basis points according to FedWatch. A 50-point increase would take the benchmark rate to between 425-450 basis points or between 450 – 475 basis points if the Fed raises rates by 75 basis points.

Regardless of what actions the Federal Reserve does at their next FOMC meeting, one thing is exceedingly clear; after five consecutive rate hikes at every FOMC meeting since March, inflation according to the CPI remains above 8%. It is difficult to perceive that the Federal Reserve will begin to pause or ease interest rate hikes as long as inflation remains at a 40-year high.

Wishing you as always good trading,