NEW YORK (Reuters] – U.S. consumer inflation rose more than anticipated in October due to higher fuel and food prices. Further signs suggest that inflation may remain elevated well into next year, given the snarled supply chains worldwide.

According to the Labor Department, 0.9% of consumers’ prices rose in October after an increase of 0.4% in September. The CPI increased 6.2% in the twelve months to October. The CPI accelerated 6.2% in October, the highest year-over-year gain since November 1990. This followed a September jump of 5.4%.

STORY:

MARKET REACTION:

STOCKS: S&P e-mini futures extended a slight loss and were last off 0.31%, pointing to a weak open on Wall Street

BONDS – Yields for benchmark 10-year notes rose by 1.4762%. TREASURY YIELD: Two-year Treasury yields rose by 0.4869%

FOREX: The index was up 0.3%, but it was still steady.

COMMENTS

RUSSELL PICE, CHIEF ECONOMIST, AMERIPRISE FINANCIAL SERVICE INC, TROY MICHIGAN

“It’s tough for policymakers to ignore this report because the gains were so broadly distributed. It’s somewhat funny, one of the only things that did go down was alcoholic beverages, so at least consumers can drown their sorrows from higher prices.

“We may start to see some deceleration in food prices in the months ahead because yesterday’s PPI report showed declines at the final and intermediate stage of processing food.

“It might still be too early to say (if inflation will remain elevated) but, one factor that is likely to continue to contribute, and to contribute in a material way to elevated CPI readings, are housing costs which are related to rental rates. Housing costs are by far the largest percentage component of the CPI index, shelter accounts for just under 33%.”

RANDY FREDERICK – VICE PRESIDENT FOR TRADING AND DERIVATIVES CHARLES SCHWAB IN AUSTIN TEXAS

“We haven’t seen as big of an increase in CPI as we have in PPI, which tells me that corporations have been absorbing a portion of that additional cost themselves which impacts their margins and profitability. However, if PPI keeps rising, then that cost will have to be shared. So the fact that we’ve had high PPI numbers gave us some insight into the fact that we were going to get higher CPI, and there’s still a lot of room there, which tells me we’ll have higher inflation again next month as well.”

“These numbers have brought the probability of a rate hike in June up a little bit, but it won’t bring it any closer than June.”

BEN JEFFERY, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK

“The most meaningful trend I think is the flattening of the curve, as the market is kind of assuming a more aggressive normalization path from the Fed.”

“What we heard from Powell at his press conference last week seems to suggest that for the time being they’re still crediting the upside in inflation to more supply-side issues, and so they are opting to remain patient until some of those supply-side concerns start to work themselves out in the middle of next year.”

“At this point the flatter curve seems to be pointing to more aggressive Fed action, so I think that’s going to be the primary story probably over the next several months or even the next quarter or two.”

JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL, CHICAGO

“Inflation hawks probably aren’t surprised by this. Inflation came in at a higher level than anticipated, so bond investors should be compensated to the buying power risk. Already, real rates are at record-low levels. At some point the bond market is going to realize they’ve been a punching bag in this whole market and they’ll demand some kind of compensation.”

RICK MECKLER, PARTNER AT CHERRY LANE INVESTMENTS IN NEW VERNON, NEW JERSEY

“It’s got to be disconcerting for the bond market to see a CPI number like this…What really is the biggest worry is that the bond market reacts to the point where it does finally become some competition for stocks. But we are still quite a way from getting there. Despite the Fed’s belief that inflation is temporary, evidence suggests that this is not the case. But my guess is they’ll stick with their plan, at least for several more months.”

“The data is a negative for the market, but probably not the type of negative it might have been years ago, as retail investors continue to clamor particularly for technology stocks. The Fed has made very few moves outside of what they’ve told the markets they plan to do, but I think even they’ve got to be a little concerned by the strength of the increase.”

PETER CARDILLO, CHIEF MARKET ECONOMIST AT SPARTAN CAPITAL SECURITIES IN NEW YORK

“What do these numbers say? These numbers show that structural inflation has increased speed and inflation will continue to grow. This is the largest annual increase in inflation I have seen in around 21 years.

The bottom line is this: inflation is not at its peak, and the Fed will face a lot of challenges in coming months.

The Fed will be astonished by this. Inflation will peak probably in the beginning of the second quarter, and over the next several months the Fed will have to change its tune a little bit and accelerate the pace of tapering.”

GREGORY DACO CHIEF U.S. ECONOMIST, OXFORD ECONOMICS, NEW YORK

    “This report is somewhat concerning in terms of the trend. Higher inflation was what we had expected. In October, we had expected a slightly warmer month. This exceeded our expectations. Inflation is on an upward trajectory. In terms of inflation outlook, I believe things will get worse before they get better. We don’t expect core inflation to peak until early 2022.

    “From the Fed’s perspective, it puts additional pressure to consider earlier tightening of its monetary policy. Although it doesn’t create an immediate pressure to make them tighten their monetary policy, this does raise the pressure.

JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST, NATIXIS, NEW YORK

“It’s clear that the rate of inflation and the persistence of elevated inflation are much more than what policymakers and markets had expected. Counterintuitively, the higher inflation goes the more the market believes this will dent real income and in effect slow the economy, which to me is the wrong way of thinking, but that’s how the market is going to approach this.

“The problem with elevated inflation is the longer you have it, the more likely it becomes ingrained and a the less likely, even with a significant weakening of GDP growth, short of a recession, will change that new dynamic.”

PAUL NOLTE PORTFOLIO MAGER, KINGSVIEW ASSET MANAGEMENT CHICAGO

It isn’t supply; it is demand. Today’s numbers, both in the US and worldwide, show that we have a demand-driven, inflation which can be controlled with higher interest rates. The Fed is far behind the curve. The Fed may be forced to raise rates sooner than expected.

“Interest rates have risen, and the yield curve has flattened, so growth stocks perform poorly, while value stocks do well, with higher numbers for some commodity stocks, healthcare, industrials, and basic materials.”

(Compliled by the global Finance & Markets Breaking News team)