Good day. U.S. inflation remains high, but key data released Thursday suggests it may be easing. The Labor Department said the consumer-price index rose 7.7% in October from a year earlier while the core CPI—which excludes volatile energy and food prices—climbed 6.3% over the same time. Both readings came in below September levels, igniting a rally in financial markets as investors saw a possibility that the Federal  Reserve might not need to raise interest rates as high as previously anticipated to bring inflation down. Chairman Jerome Powell and Fed officials have recently been signaling they would prefer to slow the pace of rate rises. Meanwhile, there is a mystery about which central banks have been snapping up gold this year. According to the World Gold Council, central banks have bought more gold this year than in any year since 1967, when a devaluation in the British pound fueled a frenzy of bullion buying.

Now on to today’s news and analysis.

The October inflation report is likely to keep Federal Reserve officials on track to approve a half-percentage-point interest-rate increase next month, stepping down from the recent pace of unusually hefty rate rises.

Investors in interest-rate futures markets placed an 80% probability of a 0.5-point, or 50-basis-point, rate rise in December after Thursday’s report, up from around 57% before the report. The probability of a fifth 0.75-point rate rise fell to around 20%, according to CME Group.

Federal Reserve Bank of Dallas President Lorie Logan said Thursday that fresh CPI data “were a welcome relief, but there is still a long way to go” to curb inflation. Speaking at a conference in Houston, Ms. Logan said she believes it may soon be appropriate to slow interest-rate increases that have included large 75-basis-point hikes at each of the past four Fed meetings. But she warned such a pullback shouldn’t represent looser overall policy.

Inflation eased in October as underlying price increases excluding energy and food slowed from a four-decade high. The Labor Department on Thursday said its consumer-price index increased 7.7% in October from the same month a year ago, the smallest 12-month increase since January 2022. The reading was down from 8.2% in September. June’s 9.1% inflation rate was the highest in four decades.

On a monthly basis, the CPI rose 0.4% in October from September, the same pace as the previous month. The CPI measures what consumers pay for goods and services. The so-called core CPI—which excludes volatile energy and food prices—climbed 6.3% in October from a year earlier, down from 6.6% in September, which was the biggest increase since August 1982.

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10 a.m.: University of Michigan preliminary November consumer survey
11 a.m.: ECB’s Lane participates in panel at 23rd Jacques Polak Annual Research Conference in Washington, D.C.

5 a.m.: European Union industrial production for September

U.S. October consumer-price index data added to evidence inflation has peaked, increasing the likelihood of a smaller interest-rate increase by the Federal Reserve at its December meeting, Commerzbank senior economists Christoph Balz and Bernd Weidensteiner wrote in a report. A rapid decline in inflation is unlikely as rent prices showed no signs of easing and there are other structural factors that will likely keep price growth higher compared with prepandemic levels, they wrote. However, signs of slowing inflation together with stabilizing wage growth and slowing job creation could tip the Fed toward a slower pace of interest-rate increases, they added. Commerzbank expects the Fed to raise interest rates by 50 basis points next month, less than the central bank’s November’s 75-basis-point increase.

—Xavier Fontdegloria

• U.S. discretionary consumer spending per household grew 2.9% in October, down from a rise to 3.2% in September, the Bank of America Institute said Thursday. It also said overall credit and debit card spending rose 8% from a year earlier, and total card spending per household rose 3.1%, down from a 4.4% year-over-year increase in September. (MarketWatch)
• Inflation in Brazil rose on month in October for the first time in four months as food and clothing prices increased. Consumer prices increased 0.59% from September, the Brazilian Institute of Geography and Statistics said Thursday, adding prices rose 6.47% from a year earlier. In September, prices fell 0.29% on month earlier and increased 7.17% from a year earlier. (Dow Jones Newswires)
• Malaysia's economy grew by double digits in the third quarter, driven by robust domestic demand and base effects due to strict containment measures a year earlier, Malaysia's central bank said Friday. Gross domestic product rose 14.2% from a year earlier and 1.9% from the previous quarter. A Wall Street Journal poll of economists had tipped the economy to grow 12.9% from a year earlier. (DJN)
• Turkey's current-account deficit widened on month in September, data released by the Turkish central bank showed Friday. The current-account deficit came in at $2.97 billion in September, bringing the 12-month rolling deficit to $39.16 billion, according to the data. This compares with a $2.71 billion current-account surplus for the same month of 2021 and a revised $2.73 billion deficit for August, the data showed. August's deficit was previously reported as $3.11 billion. (DJN)
• The European Commission lowered 2023 growth expectations for the eurozone and raised inflation forecasts on Friday, with Russia's invasion of Ukraine denting global demand and reinforcing inflationary pressures. Gross domestic product in the 19-member eurozone is forecast to grow by just 0.3% in 2023, the Commission said in its quarterly report, downgrading its July forecast of a 1.4% expansion. Eurozone economic growth is projected at 1.5% in 2024. (DJN)
• Germany's annual inflation rate accelerated in October, hitting the highest reading since December 1951, according to final data released by the German statistics office on Friday. The consumer price index rose 10.4% in October on year measured by national standards, up from 10.0% in September, the statistics office Destatis said, confirming its preliminary figures. (DJN)
• The U.K.’s Treasury chief Jeremy Hunt is expected to unveil fiscal tightening measures with a value of 54 billion pounds ($61.6 billion), or 1.9% of GDP, according to Capital Economics.He will tilt the balance toward tax hikes rather than spending cuts and have most policies starting later rather than sooner, Capital Economics’ senior U.K. economist Ruth Gregory said in a note. (DJN)
• Most U.K. housing market price and activity readings from the Royal Institution of Chartered Surveyors survey for October have collapsed, Davy Research said. The readings are close to mid-2008 levels, when the pace of U.K. house price inflation was entering negative double-digit territory and transactional activity halved, Davy analyst Conall Mac Coille said in a research note. (DJN)

This newsletter is compiled by James Christie in San Francisco.

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