Flat October CPI means PCE likely fell to 1.2% growth in the month, analyst says

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The October consumer price index came in below expectations, while initial jobless claims beat expectations for the week, but analysts still consider the economy fragile as COVID-19 cases continue rising across the country.

CPI was flat in October on a seasonally adjusted basis, after a 0.2% increase in September, while the core rate was also unchanged in the month after a 0.2% rise a month earlier, the Labor Department said Thursday.

Economists polled by IFR Markets expected both the headline and core to grow 0.2%.

Year-over-year, CPI is up 1.2%, compared to 1.4% in the prior month, falling just short of economists' projections of a 1.3% increase.

Core CPI year-over-year is up 1.6%, down from a 1.7% rise in the previous month, while economist anticipated an increase of 1.7%.

The October CPI's annual change is “more than a full percentage point below the 2.3% year-over-year increase in February, but above the pandemic-low of 0.1% year-over-year,” said Roiana Reid, U.S. economist at Berenberg Capital Markets, while the core number pushed “it further below its 2.4% year-over-year increase in February.”

According to Reid, suggests the Fed's favored inflation measure, personal consumption expenditures' next read will likely be 1.2%, down from 1.4% in the last report, well below the Fed's 2% inflation target.

“There is some downside risk to the PCE price index in October, given the sharp decline in medical care prices, which accounts for a higher share of the PCE price index than the CPI,” she said.

“Although the recent moves likely reflect some volatility (increasing declines in apparel and lodging), which could reverse over the coming months (while shelter categories accelerated which could be more persistent), we tend to the view the rebound in CPI inflation in recent months as excessive,” according to David Page, head of macroeconomic research at AXA Investment Managers. “Despite a rebound in activity, additional spare capacity in the U.S. is likely to keep downward pressure on prices over the medium-term.”

Jobless claims
Initial jobless claims fell to a seasonally adjusted 709,000 in the week ended Nov. 7 from the previous week’s upwardly revised level of 757,000, originally reported as 751,000, the Labor Department said Thursday.

Economists polled by IFR Markets projected 735,000 claims in the week.

Continuing claims dropped to 6.786 million in the week ended Oct. 31, from a downwardly revised level of 7.222 million a week earlier, first reported as 7.285 million.

The states with the largest rise in claims in the week ended Oct. 31 were: Illinois (20,377), Kentucky (3,868), Pennsylvania (3,768), Ohio (3,766), and Kansas (2,711), while the states with the biggest drops were: Massachusetts (8,470), Georgia (6,442), New York (5,883), Michigan (3,067), and New Jersey (2,500).

”34 weeks into the pandemic-caused economic downturn, new and continuing unemployment claims have moved lower, although there’s a rise in the number of Americans receiving aid under the extended Pandemic Emergency Unemployment Compensation (PEUC) program,” according to Mark Hamrick, senior economic analyst for Bankrate. “The latter number surged by nearly 160,000, putting the total number of individuals on some form of assistance at an elevated 21 million.”

The rise in positive COVID-19 cases, he said, is “taking a toll” on sentiment, livelihoods and the economy.

“With each passing week, many businesses see an extension of diminished revenues, particularly those in the leisure, hospitality and travel spaces," he added. "With more restrictions, either from governments or self-imposed by consumers, there’s no let-up in pandemic fatigue.”

"Jobless claims were better than expected, and when accounting for bi-weekly returns from Florida and California, may have been better still," AXA's Page said. "However, continuing claims are still in excess of 7 million and that rises further when other schemes are included.”

The gains made to date, he said, are “the easy" ones, and additional gains will take longer. And, "the uptick in virus cases" suggests "additional risks to these numbers," he said. "The longer-term outlook is more upbeat, [especially] with vaccine expectations, but today’s claims point to a long winter for many.”

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Economic indicators Jobless claims Employment data Inflation