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Inflation Risk - On or Off ?

Last week US CPI release was higher than estimated but as the markets focused on the Israel- Hamas conflict the reactions of financial markets were muted.

As per the data the largest rise on a monthly basis was in fuel oil and the largest fall was in prices of used cars and trucks. The price of motor vehicle insurance continues to rise on a monthly basis. This indicates higher running cost of cars and other vehicles.

Whether it is a reversal of the falling inflation trend, it is too early to tell as the data is only for a month. And this is why even the Fed swap market did not react much to the release. The important to look out for any hints would be the Fed Powell speech on 19th October as the Fed blackout period starts from Saturday.

Will the central banks give more importance to the recent conflict along with its impact on economic and financial conditions or to the recent uptick in inflation?

If the prior is higher and will remain to be watched in the next few weeks then the estimated hike might be delayed but if it is the other way then to remain in control there might be a hike in the November meeting itself.

Though nothing can be taken for sure in these times the recent conflict will be adding to volatility within the next few weeks for sure. And it might be unlikely that this winter season goes by in a low-turbulence environment.


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