Written by Millan Chauhan.
Last week, we saw inflation in the US slow for a fourth month in a row with year-on-year inflation printing at 7.7%, which was 0.3% lower than estimates. This was also 0.5% lower than the September reading. The month-on-month inflation rate was 0.4% and it does look like inflation has slowed, thanks to recovering supply chains and reduced consumption levels, as the Federal Reserve’s run of rate rises start to bite. Core CPI (which strips out energy and food prices) rose by 0.3% over the month and 6.3% on a year-on-year basis. A decline in the inflation rate simply means that prices are not rising as quickly.
Following the lower-than-expected reading of CPI, in the US we saw a rally in growth-exposed or longer-duration assets (assets that are more sensitive to interest rate changes), with the S&P 500 closing +5.5% in local currency terms last Thursday alone. For the week, the S&P 500 closed +5.9% and the technology heavy NASDAQ 100 closed up +8.9%, both in local currency terms. Markets responded well to the inflation news. It was announced that the Democratic Party also retained control of the US Senate, but the Republican Party is inching closer to securing a House of Representatives majority.
Elsewhere, Jeremy Hunt signalled that ahead of his announcement of the Autumn budget this Thursday, the Government is planning to implement a large package of spending cuts and tax increases to finance an additional £70 billion of additional borrowing.