As we head into November, the October Consumer Price Index (CPI) report is set to be released, with both Barclays and Morgan Stanley offering similar forecasts for what lies ahead. According to both banks, modest monthly gains in inflation are expected, with continued pressures in specific core goods contributing to persistent inflation trends. Here’s a breakdown of what to expect and what it could mean for the Federal Reserve’s stance on inflation.

Headline CPI: Gradual Increases Expected

Barclays and Morgan Stanley both forecast a 0.2% month-over-month increase in headline CPI for October, which would mark an annual gain of 2.6%. This would represent a continuation of a relatively moderate pace of inflation compared to the higher spikes seen last year. The banks also noted that while energy prices have contributed to some fluctuation in headline CPI in recent months, their impact appears to be tapering. This suggests that the overall trend of headline CPI gains is likely to be steadier moving forward, with less influence from volatile energy prices than we’ve seen previously.

Core CPI: Pressures Persist, With Minimal Relief

The forecast for core CPI—excluding food and energy—indicates a slightly stronger monthly increase of 0.3%, bringing the year-over-year increase to 3.3%. This projection matches the rate seen in September, signaling that inflation pressures within core components have not eased substantially. The 3.3% year-over-year gain suggests that core inflation remains stubbornly high, with only slight variations in price pressure across goods and services.

What’s Driving Core Inflation?

Several factors contribute to the continued pressure on core CPI:

• Core Goods: Used car prices remain a notable contributor, with both Barclays and Morgan Stanley observing that prices in this sector continue to rise. Persistent demand and limited supply are keeping prices elevated, contributing to inflation in core goods.
• Core Services: Although there is some disinflation in core services, it’s modest, providing only limited relief for core inflation. This suggests that while service prices may not be climbing as quickly as in previous months, they remain elevated and are likely to keep inflation rates steady.

Why These CPI Figures Matter

The Federal Reserve closely monitors CPI reports to assess inflation trends and inform monetary policy decisions. While the Fed has been aiming to bring inflation down to a more stable level, persistent pressure in core components—particularly in goods—indicates that inflation isn’t retreating as quickly as hoped. Although easing in energy prices offers some relief on the headline figure, the steady core inflation might prompt the Fed to maintain a cautious approach, potentially affecting decisions on interest rates and other economic policies.

Barclays and Morgan Stanley’s forecasts for October CPI highlight a steady inflation outlook with a few key trends: headline CPI gains driven by gradually easing energy prices, and persistent core inflation due to pressures in core goods, particularly in used car prices. These factors are expected to keep the Fed on alert as it considers its path forward in managing inflation. If the anticipated CPI numbers align with these forecasts, the Fed may see little reason to adjust its current policies, maintaining a careful watch on inflation’s stubborn elements and awaiting clearer signs of relief in core components.

As the CPI report approaches, these insights offer valuable context on how current economic conditions may shape inflation policy in the months ahead.