TheConsumer Price Index (CPI)measures the change in prices paid by consumers for a market basket of goods and services. CPI is a key measure that shows changes in consumer purchasing trends and inflation. The central bank (Federal Reserve) tends to closely follow CPI (and PPI) to monitor the price stability objective of the Fed’s dual mandate. The CPI report showed that inflation while matching economists' expectations, posted an uptick in prices from the prior month. Headline inflation rose 0.2% in October, bringing the annualized inflation rate to 2.6%, up 0.2% from September. Both measures came in line with expectations. The core rate, which excludes the more volatile categories of food and energy and is considered a better predictor of future prices, rose 0.3% for the month and 3.3% from a year ago. Both core measures came in line with expectations and matched September’s readings. Pricing moves continue to be driven by changes in shelter, energy, and food. According to the Bureau of Labor Statistics, over half of the monthly move came from a 0.4% jump in shelter costs. The food index also increased over the month with the ‘food at home’ index increasing 0.1% and the ‘food away from home’ index increasing 0.2%. The energy index has declined in recent months (-1.9% in September) and remained unchanged in October. On an annual basis, the shelter index is up 4.9%, the food index has risen 2.1%, and the energy index is down -4.9%. Other contributing factors to the monthly rise include a 2.7% increase in used vehicle costs and a 3.2% jump in airline fares costs. Medical care services rose 0.4%, apparel declined by -1.5%, and transportation services rose 0.4%. Furthermore, the Bureau of Labor Statistics released theProducer Price Index (PPI)later in the week, which measures the changes in prices at the wholesale level. Headline PPI rose 0.2% in October, while the core index (which excludes food and energy) rose 0.3%. Both measures came in line with expectations. On an annual basis, the headline wholesale inflation measured at 2.4%, while the core rate measured at 3.1% While the readings remain above the Fed’s long-term target of 2%, the measures are not expected to come in on a linear trajectory, and the overall trend of inflation is still showing that price increases are generally moderating, and inflation is largely driven by isolated factors (such as sticky shelter costs). The inflation data comes as the Federal Reserve has begun reducing the benchmark interest rate, otherwise known as the federal funds rate. The central bank lowered the fed funds rate by 50bps (0.50%) at the September meeting and by another 25bps (0.25%) at the November meeting. At the November press conference, Fed Chairman Jerome Powell hinted at future cuts, although the pace and magnitude will depend on incoming data. On Thursday,Powell spoke on monetary policy and the economic outlookin an event hosted by the Dallas Regional Chamber, World Affairs Council of DFW, and the Federal Reserve Bank of Dallas, in Dallas, TX. Powell said,” The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” Powell acknowledged that “the economy is not sending any signals that we need to be in a hurry to lower rates”. Powell’s remarks illustrated an upbeat assessment of current conditions, pointing to a resilient labor market despite recent disruptions (labor strikes and storm damage). The unemployment rate has risen recently but remains near historical lows. Following the speech, the futures market lowered the expectation for a quarter of a percentage point (0.25%) cut at the December policy meeting. According to the CME Fed Watch tool, the futures market is pricing in a 55% chance as of Monday morning, which fell from 72% on Wednesday and nearly 65% a week prior.5 | 
