US inflation dip may ease interest rate hikes
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4.30pm: US inflation dips
US headline CPI inflation dipped last month and came in lower than expected, rising 7.7% year-on-year in October from 8.2% in September and compared to the consensus forecast of 7.9%.
It has raised hopes that the inflation beast may be coming under control and that future interest rate hikes in the US and elsewhere may not be so aggressive.
The data spurred stock markets. The FTSE 100 closed 79.09 points (1.08%) higher at 7,375.34.
Samuel Fuller, Director of Financial Markets Online, said: “Policymakers have got their wish. The signs are that a series of rapid interest rate rises may finally be taming rampant inflation. Prices are cooling faster than expected in the US, which makes a 0.75% rate rise next month extremely unlikely.
“This is going to calm nerves on both sides of the Atlantic because the data offers the tantalising promise of calmer waters where rate setters don’t have to wreck economies to bring inflation under control.”
Rob Clarry, Investment Strategist at Evelyn Partners, said: “After a year in which inflation has consistently surprised to the upside, today’s CPI report finally brought some good news.
“October’s inflation print surprised to the downside, with both the annual and monthly figures weaker than expected. The 0.3% increase in core inflation was the softest reading since September 2021.
“The immediate market reaction to today’s CPI print was positive. S&P500 futures spiked +2.5% as investors hope that this will be the start of a continued deceleration in headline inflation.
“This does not change our view that the Fed will continue to stay the course with its plans for tighter monetary policy in the coming months. However, we do expect smaller rate hikes following four consecutive 75 bps hikes.”
Danni Hewson, AJ Bell financial analyst, was more cautious about an easing of monetary policy. She said: “Will the changing picture prevent a fifth consecutive 75 basis point hike in interest rates from the Fed next month? That’s the question that will be on all investors’ minds today.
“But October’s number is still uncomfortably hot, almost four times the target central bankers are aiming for, and they will most certainly want to see sustained easing of core inflation before they take their foot off the brake.”
British Gas owner Centrica said it expects profits to rise this this despite earnings in its retail division being lower than expectations because of warmer than normal weather in October.
National Grid is investing a further £40 billion in critical infrastructure over the next four years of which £29 billion will be directly in the decarbonisation of energy networks after spending a record £3.9bn in the half year.
It has achieved £225 million of operating cost efficiency savings to date, enabling the company to mitigate some inflationary pressures on both the business and customers. It has also announced funding to help its most vulnerable customers and communities through this winter and next.
Underlying profit before tax for the half year to 30 September was 47% higher at £1.45 billion. The board declared an interim dividend 17.84p per share in line with policy (17.21p per share in the prior period).
Stationery retailer and travel agent WH Smith swung to an annual profit as a rebound in air and rail travel boosted revenues, and it said the momentum has continued into the current fiscal year.
The company posted pre-tax earnings of £63m compared with a loss of £116m a year ago when Covid-19 travel restrictions were in place.