A 1.8 percent month-over-month jump in energy prices – fuelled by a 4 percent recovery in the gasoline sub-index – added to increases in food and other categories in supporting the all-items index.

With highly-volatile food and energy components excluded, core prices rose 6.3 percent year-over-year, up 0.3 percent over the prior month. This was well below the 0.5 percent increase markets had expected.

As expected, shelter costs kept rising, increasing 0.8 percent in the month as rents and owners equivalent measures moved up. Overall non-energy services inflation turned more mixed, with transportation up 0.7 percent, while medical care costs dropped -0.5 percent. Airfares slid -1.1 percent after rising in the prior month. New and used vehicle prices dropped -0.9 percent after rising 0.4 percent in September.

Two- and ten-year bond yields dropped after the data hit the wires, triggering a slump in the dollar. Equity futures are strengthening, high-beta currencies like the Canadian dollar are mounting a recovery, and the euro is pushing toward par against the greenback. Odds on a 50 basis point hike at the early-December Federal Reserve meeting are climbing relative to those on a larger move, and terminal rate expectations are slipping back under the 5 percent mark.

Author

Karl Schamotta

Chief Market Strategist