The latest report on inflation from the US Bureau of Labor Statistics is expected to show slower growth in consumer prices this month. Analysts expect that the headline Consumer Price Index (CPI) will remain flat for October, following a 0.2 percent increase in September. Core inflation, which excludes volatile energy and food prices, is also expected to remain unchanged.
The Federal Reserve has held interest rates at near-zero levels since March in response to the coronavirus pandemic. Falling prices and weak economic activity have kept inflation subdued. Inflation is now below the Fed’s 2 percent target, and the central bank has indicated it is in no rush to raise rates even if inflation moves higher.
The report will likely provide clues on how the pandemic has affected spending and consumer prices. With millions of Americans out of work and costs for items such as rent, clothing, and gasoline falling, it is likely that the CPI will remain flat or possibly experience a slight decline.
Analysts also expect to see a decrease in the closely watched Personal Consumption Expenditure (PCE) price index, which excludes volatile food and energy prices. The PCE is the Fed’s preferred measure of inflation. If the PCE declines, it could be a sign that the effects of the pandemic have dampened economic activity and could hamper the Fed’s effort to raise inflation.
Inflation reports can have a significant market impact as they have a direct effect on monetary policy decisions by the Fed. Many investors are watching closely to see whether the October report will provide any clues on how the pandemic is affecting prices and the path of policy going forward.