📝Disinflation Is Getting Harder: Wells Fargo

Core goods prices look set for another rise in October, although it will likely be more modest (0.1% compared to 0.2% September) with a different set of drivers. After some of the largest gains of the past year in categories like apparel, household furnishings and other goods, we expect some mean-reversion in non-vehicle core goods. In contrast, the recent rebound in auction prices for used cars point to what could be the largest monthly gain in the CPI for used vehicles in about a year. We still think that the benefits of smoother supply chains and cooler demand have yet to fully run their course, but the deflationary impulses from new and used cars in particular may ebb through the final months of the year—especially as the devastation of Hurricanes Helene and Milton boosts demand for replacement vehicles and parts.

While the journey back to price stability has not been completed, we have been of the view that the cooler jobs market, un-kinked supply chains, pickup in productivity and anchored inflation explanations would help drive inflation slowly back to the Fed's target over the course of the next two years. A number of upside risks remain in the near to medium term, however, including a pullback in labor supply, deglobalization's impact on import prices, the potential for worsening conflict in the Middle East and still-strong demand.- Wells Fargo