Prices are officially on the rise. According to marketwatch.com, consumers paid more for gas, rent and used vehicles in the month of October. The rise in prices fueled a climb in the Consumer Price Index of .3% for October, the largest rise since January. The reading was basically in-line with consensus estimates.
Core inflation, the reading that attempts to smooth volatility and strips out food and energy costs, rose by .2% in October. The yearly increase in the core rate actually saw a slight dip from 2.2 to 2.1%.
- Higher gasoline costs were a major component of the increase
- Used vehicle prices rose
- Auto insurance climbed
- Medical care costs increased
- Home furnishings also became costlier
It is important to keep in mind that all of these expenses are typical household expenses. As overall consumer costs rise, they may have less disposable income for investment and other purposes. This can have wide-ranging effects that spread to other areas of the economy such as housing and credit card debt.
What Does It Mean?
Although headline inflation moved higher, the core reading remains relatively stable. Inflation has, without question, been on the rise this year due to a strong economy. Higher wages, higher material costs and tariffs have all contributed to rising inflationary pressures.
Given the increasing but stable outlook for inflation, the Federal Reserve will likely remain on its current path of policy normalization through additional, gradual rate hikes.
Rising inflation and further Fed rate hikes may keep the dollar on the offensive. A higher dollar has weighed on gold in recent sessions, and has likely been a major obstacle to any significant, sustainable rallies in the yellow metal in recent months.
Gold Market Reaction
The gold market is trading slightly lower in early action, and the CPI data does not appear to be having much, if any, effects on price action. The gold market has been focused primarily on recent dollar strength as it tries to maintain prices above the psychologically important $1200 level.