Inflation hits 3.2%. The last mile begins

The October consumer price index provided welcome relief to equity bulls, with headline inflation dropping to 3.2 per cent and core prices advancing at their slowest annual pace in two years. Yet fixed-income professionals recognise that the easy phase of the disinflation journey has officially ended. Navigating the 'last mile' from three per cent to the Fed's two per cent target will be the most arduous leg of the monetary campaign.

The Sticky Core Barrier

Core inflation remains anchored near four per cent, driven by persistent shelter costs and non-housing service wages. With oil prices softening, headline prints may look cosmetically benign, but the structural momentum inside domestic services has not been extinguished. If the Federal Reserve eases prematurely based on headline progress, it risks reigniting wage-price expectations and repeating the stop-start errors of the 1970s.

Slowing inflation from nine per cent to three per cent was achieved through supply healing and base effects; grinding it down to two per cent requires structural economic discipline that markets are ill-prepared to endure.