US CPI jumps past forecasts in October with 'more to come'

The cost of living in the US rose more quickly than expected in October on the back of further spikes in energy and food prices.

According to the US Department of Labor, in seasonally adjusted terms, the headline consumer price index increased at a month-on-month pace of 0.9%, which pushed the year-on-year rate up to 6.2%.

Economists had penciled-in a smaller 0.6% jump to 6.2%.

Energy inflation shot higher by 4.8% versus September, nearly tripling the previous month's advance, while food costs jumped by 0.9%.

Prices also printed ahead of forecasts at the core level, which excludes the often volatile food and energy components, rising by 0.6% on the month (consensus: 0.4%), which took the annual rate to 4.6% (consensus: 4.3%).

Commenting on the latest inflation numbers, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said they were driven higher by rents, with the weighted average of primary and owners' equivalent rent jumping by 0.44%, in line with September's increase - which had been the biggest for 15 years.

While "sudden", he said that the surge in rents was in line with his models.

New vehicle prices meanwhile continued rising at a rapid pace, gaining 1.4%, as prices for used cars and trucks rebounded from two months of declines.

All in all, said Shepherdson, the numbers were "grim, and more to come".

"We have no problem believing that supply constraints will ease markedly over the next year and do not require a monetary policy response, but the Fed is now putting a great deal of faith in the idea the wages soon will be constrained by rebounding participation, and that stronger productivity growth will hold down unit labor costs growth too.

"This is entirely reasonable, but not certain [...]."

Shepherdson added that he now expected core CPI to peak at between 6.0-6.5% in February or March of the following year, "massively" increasing the pressure of the head of the Federal Reserve and other dovish policymakers.

He also said that he was "baffled" by the Fed chairman's decision not to warn markets "explicitly" of the risk of a run of big rises in core CPI over the next few months.

"Strong demand and constrained supply will drive inflation higher in early 2022 which could lead the Fed to raise rates earlier than our December 2022 forecast," chipped in Kathy Bostjancic and Gregory Daco at Oxford Economics.

"If inflation continues to outstrip expectations, the Fed might also accelerate its QE tapering, but for now we foresee consistent tapering through mid-2022."

As of 1443 GMT, the yield on the benchmark 10-year US Treasury note was up by five basis points to 1.491%.