US October CPI Expected Up 0.3% Month-on-Month; A Week That Will Shape the Fed's Rate Decision

From November 9 to 13, a string of inflation and economic indicators from Japan, the US, and Europe will be released in succession. Above all, the US October Consumer Price Index (CPI) to be published on the 10th is drawing the market's attention as the most important factor that could sway the Federal Reserve's rate decision at the December Federal Open Market Committee (FOMC) meeting.

In September, the headline figure rose 0.6% and the core index rose 0.3%. If the increase exceeds market expectations, the persistence of inflationary pressure will be brought into focus, and dollar buying is likely to accelerate on expectations of additional tightening by the Fed.

This time, circumstances differ from the usual. Because the US government shutdown in October last year prevented the BLS from conducting its sampling survey, the relevant data is missing, so no year-on-year figure will be published—only the month-on-month change. Market participants will read the underlying inflation trend primarily from the month-on-month results. After the CPI release, remarks are scheduled from senior officials including Fed Governor Waller and Philadelphia Fed President Paulson, which will also be watched as clues to the direction of monetary policy.

In the UK, the preliminary July-September Gross Domestic Product (GDP) reading will be published on the 12th. Growth is expected to accelerate to 0.7% quarter-on-quarter from 0.5% in the April-June period. While the services sector is underpinning the economy, the pattern of high prices and high interest rates weighing on household consumption and capital investment continues. On the 5th, the BOE decided to raise its policy rate by 0.25 percentage point to 4.00%. The decision passed by an 8-1 majority, with the dissenting member, Mann, arguing for a 0.5 percentage point hike to 4.25%, making for a strongly hawkish outcome. Markets have raised the probability of an additional rate hike in December to around 50%, and the scenario is envisioned whereby GDP beating expectations would lead to pound buying, while a clear slowdown would lead to pound selling.

In Japan, the October Corporate Goods Price Index will be released on the 12th. It is expected to show a 0.2% month-on-month rise and a 6.5% year-on-year rise. In September, the year-on-year increase slowed to 6.8% from 7.6% in August but remains at a high level. The focus is on how far rising raw material and energy prices are feeding through to business-to-business transactions; if the figure exceeds expectations, it would support expectations of an additional BOJ rate hike and make yen buying more likely.

Regarding the Bank of Japan, the main opinions from the monetary policy meeting held on October 29-30 will be published on the 10th. At that meeting, the BOJ decided to keep its policy rate unchanged. BOJ Governor Kazuo Ueda, while indicating his view that the underlying inflation rate has reached the 2% target, said regarding the timing of the next rate hike that "we will make a decision at each policy meeting, including the next one." This will be valuable material for gauging each board member's stance and degree of assertiveness regarding an additional rate hike within the year.

In China, the October consumer price index and producer price index will be released on the 9th. CPI is expected to rise 0.8% year-on-year (previous: up 0.9%), and PPI is expected to rise 5.4% (previous: up 5.0%). The focus is on whether price increases at the production stage feed through to consumer prices; if sluggish CPI growth continues, the weakness of domestic demand will be brought into focus and could weigh on commodity-linked currencies.

Among emerging economies, the Central Bank of the Republic of Turkey will publish its quarterly inflation report on the 12th. Turkey's October CPI rose 29.77% year-on-year, slightly accelerating from 29.73% the previous month but staying below 30% for a second consecutive month. Views have emerged that a rate cut will be discussed at the December monetary policy meeting, and the contents of the report may be treated as a market factor.

Note: Forecasts are market consensus. The US CPI will take the unusual form of not publishing a year-on-year figure.

The series of indicators carries important significance for gauging whether major central banks will pivot their policy management toward curbing inflation or supporting the economy. In the US, if inflation stickiness is confirmed, rate-hike expectations could reignite, and through a stronger dollar and weaker bonds, pressure for capital outflows from emerging economies could intensify. In the UK, if expectations of continued rate hikes strengthen, the pound is likely to be bought, while in Japan, if corporate goods price growth exceeds expectations, yen buying is likely to prevail.

In the foreign exchange market, sharp swings are expected around the time of the indicator releases. Many market participants believe that if US CPI exceeds expectations on a month-on-month basis, the dollar will be bought further, while if it comes in below expectations, dollar selling will accelerate on ebbing rate-hike expectations. In Japan, whether the BOJ's main opinions confirm a stance among board members favorable toward an additional rate hike will be the focal point determining the direction of the yen.