CPI Prints Hotter Than Expected; 50bps Rate-Hike Now On The Table As Fed's Waller Sparks Hawkish Panic

With today's CPI print (and its 'ghost' YoY data and healthcare plug) on everyone's mind, hawkish comments from Fed Governor Chris Waller already gave markets a jolt this morning, pushing bond yields off their lows, with the biggest moves at the US short-end. 

“If, as I expect, the monthly rate of inflation improves in October, I am leaning toward supporting an increase in our policy rate of 25 basis points,” Waller said in a speech in London.

“But if the October CPI inflation data out later today are similar to the past two monthly readings — with core CPI inflation around 0.3% or even higher — then a stronger policy move may be needed,” he said. 

“In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting.”

The remarks sent the dollar higher, stocks lower, and pushed Dec rate-hike odds to almost certainty (well 100% odds of a 25bp hike, not 50bps)...

And that's before the CPI print...

Headline Consumer Prices rose 0.4% MoM (vs +0.3% MoM exp and +0.6% MoM prior). With the healthcare plug and YoY data snafu (BBG has backfilled the data via extrapolation), this is HOTTER than expected..

Only 1 of 70 analysts expected hotter than this...

Key drivers:

• Shelter +0.3% (accounted for over 30% of the monthly gain). 
• Food +0.5% (at home +0.4%, away from home +0.5%). 
• Energy +0.7% (gasoline +1.0% SA after a big September jump).
• Used cars and trucks fell 1.2%.

Food: The index for food rose 0.5% in October after being unchanged in September. 

The food at home index increased 0.4% over the month. Four of the six major grocery store food group indexes increased in October, while one index decreased. The index for other food at home increased 0.7% in October, as the index for snacks rose 1.0% . The meats, poultry, fish, and eggs index increased 0.5 percent over the month, as the beef index rose 0.9%. The index for fruits and vegetables and the index for dairy and related products each increased 0.6 percent in October.

 In contrast, the nonalcoholic beverages index decreased 0.3% in October, after rising 0.9% in September. The index for cereals and bakery products was unchanged over the month. The food away from home index rose 0.5 percent in October. The index for full service meals rose 0.7%, and the index for limited service meals increased 0.4% over the month.

While it should not be a surprise, this is the highest level for consumer prices ever (black line)...

Core CPI rose 0.3% MoM (also HOTTER than expected vs +0.2% MoM exp)

Shelter: The shelter index increased 0.3% over the month after rising 0.4% in September.

The index for owners’ equivalent rent rose 0.3% in October, and the index for rent increased 0.2%. The lodging away from home index rose 0.6% in October after rising 2.0% the previous month.

Energy: The index for energy increased 0.7% in October after rising 5.2% in September. 

The gasoline index increased 1.0% over the month, after advancing 9.1% the previous month. (Before seasonal adjustment, gasoline prices decreased 0.7 percent in October.) The index for electricity rose 0.9% over the month.

In contrast, the natural gas index decreased 0.8% in October.

Energy is dominating the short-term inflation picture...

But, on the bright side, this appears to be 'peak energy' CPI as oil and refined product prices have fallen notably since this print...

After CPI, the market is now pricing in a 14% chance of a 50bps hike in December!!

Stocks are down, bond yields are higher, and the dollar is up.

However, as Bloomberg's Anna Wong notes, it wasn't all hawkish with some details of the report were better than the headline:

"Core goods inflation came down meaningfully, driven by price cuts in cars. AI-exposed electronic items also moderated – the data suggest AI-driven inflation has peaked from a few months ago. 

The hot print was driven by bulk items exposed to increased metal and freight charges, recreation services and stray items in services. 

Still, the bar for NOT hiking is now very high... 

...so, will Waller still push for 50bps in December?