The long shadow of the pandemic-induced shock continues to hang on the economy. The tone and tenor of the data continue to imply that the central bank and the fiscal authority have enormous space to sustain accommodative monetary policy and address the intensification of the pandemic in the near term, not to mention addressing the modernization of the domestic infrastructure in 2021 without interest rate risk or inflationary risk.
Our preferred metrics in the Consumer Price Index — CPI rent of shelter and CPI services excluding rent and energy — both eased on the month and stand at 1.6% and 1.5% on a year-ago basis, which implies that mild inflation continues to work its way through the economy. Given that the economy is operating at only 80% of its capacity, policymakers and investors should continue to expect weak inflationary readings with risk to the downside in the near term.
Within the CPI data, price pressures are muted
The October CPI was flat on the top line and in the core metric that excludes energy and food. On a year-over-year basis, inflation advanced 1.2% in the top line and 1.6% in the core, both well below the 2% target of the Federal Reserve.
October CPI excluding food, energy and shelter down 0.1%, while advancing 1.3% year over year. Medical care fell 0.4% on the month but was up 2.9% year over year. Used cars and trucks declined 0.1%, up 11.5% year over year. Energy prices advanced 0.1% and were down 9.2% on a year-ago basis.
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