U.S. October CPI may impact Fed rate cuts as core inflation expectations remain strong.

The Institutional Foreign Exchange TradingUS October CPI data will be released on Wednesday evening, and the market is closely watching its impact on the future pace of the Federal Reserve's interest rate cuts. The market expects the overall CPI year-on-year increase in October to rise to 2.6%, higher than 2.4% in September, with a month-on-month increase projected at 0.2%. The core CPI, excluding food and energy, is expected to maintain a year-on-year increase of 3.3%, with a month-on-month increase of 0.3%. Analysts point out that if the CPI data exceeds expectations, it may trigger concerns about rising inflation again, potentially hindering the Fed's rate cut pace, while US Treasury yields and the dollar may continue to rise.

Several key components of this CPI data are receiving special attention. First is the Owners' Equivalent Rent (OER), the largest single component of the CPI, which significantly impacts overall inflation trends. Economists from Morgan Stanley suggest that OER may slightly rise in October, but overall it still indicates a gradual slowdown in the future. They note that the decline in September's OER may have been influenced by seasonal factors, and the change in October will provide clearer guidance for subsequent trends.

Additionally, hotel prices are expected to fluctuate due to hurricane factors, which will push up the CPI reading for the away-from-home accommodation category. Analysts state that the US Bureau of Labor Statistics has made seasonal adjustments to this item to address the decline in demand after the summer travel peak, but natural disasters may increase its volatility.

Overall, the performance of this CPI data will directly affect market expectations for the Federal Reserve's rate cut prospects. If the data reflects increased inflationary pressure, the Fed may be more cautious in its December decisions. Analysts advise investors to closely monitor changes in OER and hotel prices to understand inflation trends and their potential impact on future policies.

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