In October 2024, U.S. headline inflation rose to 2.6% year-over-year (YoY), up from 2.4% in September. This marks the first uptick in annual inflation since March 2024. The increase comes amid the Federal Reserve’s recent rate cuts, implemented to combat slowing prices and a weak labor market. While on a monthly basis, inflation held steady at 0.2%. Core inflation, which excludes the volatile categories such as food and energy prices, also rose to 3.3% YoY but remained unchanged at 0.3% month-over-month (MoM).

What’s Driving the Increase?

The primary driver of October’s inflation rise was the shelter component, which accounts for roughly one-third of the overall inflation index. Shelter costs increased by 0.4% MoM. Additionally, rising transportation costs contributed to the inflationary pressure. Airfares climbed 3.2%, while auto insurance surged 14% YoY.

However, not all costs rose. Food at home and energy prices continued to decline, providing some relief to consumers. Grocery prices dipped by 0.1% MoM, while energy prices dropped by 0.9% MoM, aided by lower gas prices.

Simpan Views

Federal Reserve’s Next Steps: Staying the Course

Despite the mild inflation uptick, economists expect the Federal Reserve to proceed with its planned rate cuts. A 25-basis-point reduction is widely anticipated as the Fed aims to achieve a “neutral” rate—balancing inflation control with maintaining demand. This strategy is part of an effort to engineer a “soft landing,” avoiding a potential recession while guiding inflation closer to the 2% target.

Trump’s Presidency and Inflation Outlook

The Federal Reserve’s trajectory could face headwinds under newly re-elected President Trump. Many experts warn that potential policy shifts—such as broad-based tariffs on imports—could stoke inflationary pressures. This scenario may force the Fed to reassess its rate-cutting agenda, potentially slowing the pace of reductions in 2025. Such tariffs could complicate the Fed’s efforts to maintain its 2% inflation target, introducing uncertainty into the economic outlook.

Portfolio Updates

We continue to prioritize selecting fundamentally strong Indonesian companies, particularly those with significant U.S. dollar exposure for the Simpan Sustainable Equity Fund, given its potential for further strengthening. Additionally, we have introduced momentum-based trading strategies to enhance the fund’s performance given the volatility in the Indonesian capital markets. 

For our Bond Fund, the Fed's rate cuts prompt a shift toward medium-duration government bonds to capitalize on higher yields. 

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