US October inflation, the effects of vaccine and financial incentives

In the US, headline CPI remained unchanged on a monthly basis, but increased by 1.2% on an annual basis.

On the core inflation side, where volatile items such as food and energy are excluded, there is an increase of 0% and 1.6% on a monthly and annual basis, respectively. Market expectations were 0.1% and 1.3% monthly and annual inflation for the headline CPI, and 0.2% and 1.8% monthly and annual for the core CPI. It is seen that many sub-items balance each other in increases and decreases in October.

When we look at the sub items; the food index increased by 0.2%, while the energy index showed a limited increase of 0.1%. On the other hand, electricity prices in the energy group increased by 1.2% in October. Food prices increased by 3.9% on an annual basis, while energy prices fell by 9.2% in the last 12 months. While the decline in oil prices suppresses general inflation, oil prices, which have increased with the optimism brought by the recent vaccine news, may increase its inflationary effect. While housing increases by 0.1%, we see a 0.4% decrease in health services. Airlines, entertainment and new vehicles were among the rising indexes, while motor vehicle insurance, clothing and household goods indices declined. If we will start to see the situation of using the vaccine and breaking the effect of the pandemic in 2021, the rotation in inflation items will change between the pandemic items and the items affected by the pandemic. This means that inflationary pressure will increase in groups that affected by pandemic because of the low demand. We will see the most obvious effect of this in service prices.

Inflation expectations will also be important for the future of the fiscal stimulus package. In the time it will take until Biden moves to the office, we will see the uncertainty of this. As a result, Covid cases continue to pose a threat at an uncontrolled level. The effect of economic recovery is decisive at this stage, and Senate Republicans will use indicators that point to economic recovery to reduce the size of the Democratic package. Biden will be the "lame duck", so he has to negotiate with the Republicans. A financial aid package to be issued after Biden takes over in January will probably be somewhere in the middle of what Biden had in mind and what Republicans wanted.


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