US inflation progress stalls in October

Kia ora,

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news markets are starting to price in the return of US inflation in 2025, and perhaps the end of US Fed rate cuts (although there could still be a last hurrah in December).

In the US, their CPI inflation rate rose to 2.6% in October from 2.4% in September. This is the expected rise but is the first rise in seven months. In March it was running at 3.5%. Energy costs fell in October but by less than expected. Rents rose 4.9%. Food inflation slowed to 2.1% and transportation (airfares) to 8.2%. Prices continued to fall for new vehicles. The closely-watched core inflation rate held at 3.3%.

Given that the new US Administration policies are expected to be strongly inflationary, the US Fed will have a challenge on its hands to retain the gains they have won post-pandemic. But it seems that markets are still pricing the US Fed to cut rates again when they next meet on December 19 (NZT).

After falling in each of the past six weeks, US mortgage applications were little-changed last week (up +0.5%) to be little-changed from the same week a year ago. We probably should note that during all of October, they fell -35% from the prior month. And more falls are anticipated because benchmark interest rates are rising quickly now, in anticipation of a resurgence of inflation in 2025. At least, that is what markets are pricing.

US household debt rose on a gross basis to US$17.9 tln in Q3-2024, half of the increase in mortgage debt on rising home loan rates. Delinquency rates edged up marginally but remain historically now

Across the Pacific, Japan reported rising producer price inflation, with PPI up +3.4% in October, the highest since August 2023, and the 44th month of PPI gains.

In India, they had record passenger car sales in October, helped by unusually having two major festivals in the month, each with a history of higher consumer spending.

Although it is now slowing, wage cost growth in Australia in the September year was up +3.5%, a cost pressure on businesses that isn't being matched in output prices or rising productivity. It is the expected moderation, but they need it to slow much faster or there will be growing economic issues.

The UST 10yr yield is now at just on 4.45% and up +2 bps from yesterday.

The price of gold will start today at US$2589/oz and down -US$10 from this time yesterday.

Oil prices are -50 USc softer at US$68/bbl in the US while the international Brent price is unchanged at just on US$72/bbl.

The Kiwi dollar starts today at 58.9 USc and down -30 bps from yesterday as the USD rises further. The inflationary effect will now start to appear on imports because it has fallen -7.5% since the start of October. Against the Aussie we are +10 bps firmer at 90.8 AUc. Against the euro we have slipped -20 bps to 55.7 euro cents. That all means our TWI-5 starts today at just on 68.6, and down -20 bps from yesterday.

The bitcoin price starts today at US$92,520 and up another +6.2% from this time yesterday. Volatility over the past 24 hours has been very high at just on +/- 4.2%. The price in NZ dollars has now exceeded NZ$150,000 for the first time.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.