US Inflation

Yesterday afternoon, the latest inflation print from the US indicated that the consumer price index (annualised) rose 20bps from September figure to 2.6%, meeting market expectations.

This marks the first time in over half a year that the headline rate of inflation has risen and marks a departure from September’s figure of 2.4% where inflation eased to its lowest level since early 2021.

Behind the headline figure, energy costs fell 4.9%, with petrol prices falling 12.2% on a year-on-year basis. Hence, when excluding energy and food prices, core inflation hit 3.3% on an annual basis.

While this was in line with last month’s figures, it nonetheless marked an increase from July and Augusts figures, indicative of how the Federal Reserve is not out of the woods yet in their battle against inflation. Indeed, price increases was seen across shelter, used cars and trucks, airline fares, medical care, and recreation.

On a monthly basis, inflation rose 20bps, in line with July, August and September’s figure. Here, the 40bps rise in shelter costs contributed to over half of the overall level of inflation. However, when stripping out the volatile food and energy components, core CPI rose 0.3% on a monthly basis.

Yesterday’s data release also comes against a backdrop of market participants readjusting their inflation forecasts in the wake of the US election.

For example, many continue to weigh up the potential inflationary impact that Trump’s 10% import tariff could have on inflation.

One organisation – Yale’s The Budget Lab – which labels itself a non-partisan policy research centre calculated that these tariffs could “initially raise the level of consumer prices by 1.2% to 5.1%.” They continued by saying that “this represents 7 to 31 months of normal inflation under the Federal Reserve’s target, and between a tenth and a third of the price level increase experienced over 2020-2023.”

Speaking earlier this year, Moody’s chief economist Mark Zandi, also indicated that these tariffs would likely add an additional 0.7 percentage points to the headline rate of inflation.

Sticking with the US, it has now been confirmed that the Republicans have secured a clean sweep across Congress. This follows the GOP crossing the 218 Seat Threshold needed for a majority in the House of Representatives, with a count now of 220. The party’s control of the country’s lower house comes alongside their victory in the upper house, the Senate, where the Republicans have 53 Seats and the Presidency.

The Republican’s sweep will make it easier for Trump to enact his legislative agenda, streaming his ability to get bills through Congress. It will of course similarly help getting bills passed that originate elsewhere, particularly the House given that they have exclusive powers in initiating revenue bills.

Trump of course enjoyed a Republican Sweep during the first two years of his first Presidential term.

Nevertheless, In the Upper House, Senate Republicans voted in John Thune as majority leader this week, marking a departure from Mitch McConnell who was the longest standing Senate Majority Leader. Here, the Senate moved firmly away from Trump’s preference, the Floridian Senator Rick Scott who is more akin to the MAGA faction of the party.

As The Atlantic Russell Berman notes, “Thune criticized Trump’s role in fomenting the Capitol riot on January 6, 2021, calling the former president’s actions “inexcusable.”” That said Berman maintains that while Thune may not be a Trumpian “loyalist” he “is no longer a Trump critic” too.