Why Are Markets Chasing “Pivot Talk”

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Senior Economist at CME Group


  • U.S. CPI inflation has moderated from 9.1% in June to 7.7% in October
  • The labor market remains very tight, with average hourly earnings still growing by nearly 5% per year

Is inflation finally beginning to moderate?

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During the past year and a half, inflation has soared around the Western world. But finally, on Nov. 10, we got a piece of good news: U.S. inflation unexpectedly moderated in October, coming in 0.2% lower than expected. Markets rejoiced. Bond yields plunged, and equities rallied. 

The overall CPI inflation has now moderated from 9.1% in June to 7.7% in October. But much of the reason for the moderation in the overall CPI comes from energy prices, which have been falling in recent months.

Headline US CPI: Month On Month And Year On Year

Meanwhile, the story of core inflation is not so positive. Excluding food and energy, CPI slipped from 6.6% to 6.3% year-on-year. 

US CPI Ex-Food And Energy: Month On Month And Year On Year

The single largest component of inflation is housing, specifically rent and owners’ equivalent rent. And housing costs continue to soar, rising nearly 7% year-on-year.

Owners Equivalent Rent (OER) vs S&P Corelogic CS 20 Cities Home Price Index

The labor market is slowing but remains very tight, with average hourly earnings still growing by nearly 5% per year. But even with the economy back to full employment, employers are still looking to hire an additional 10.7 million workers – far more than they were looking to hire pre-pandemic. 

US Jolts job openings and labor turnover

As such, it may be slightly premature to celebrate a moderation in inflation. 

Originally Posted November 21, 2022 – Why Are Markets Chasing “Pivot Talk”

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