U.S. inflation slowed last month, a sign that the Federal Reserve’s interest rate hikes continue to hold back the economy. surge in consumer prices which have tormented consumers for two years.
Tuesday report of the Labor Department showed that lower gasoline prices helped curb headline inflation, which remained unchanged from September to October, down from the previous month’s 0.4% jump. Compared to last year, consumer prices increased by 3.2% in October, compared to 3.7% in September.
Excluding the volatility in food and energy prices, so-called core prices also fell unexpectedly. They increased by only 0.2% from September to October, slightly lower than the pace of the previous two months. Economists closely monitor underlying prices, seen as a good sign of future inflation trends. Measured year-over-year, underlying prices rose 4% in October, compared to 4.1% in September.
The latest price figures come as Fed officials, led by Chairman Jerome Powell, weigh whether their benchmark interest rate is high enough to suppress inflation or whether they should impose another rate hike In the coming months. Powell said last week that Fed officials were “not convinced” that rates were high enough to keep inflation in check. The Fed has raised its benchmark interest rate 11 times over the past year and a half, to about 5.4%, the highest level in 22 years.
Costs for many services, including rent, travel, and health care, continue to rise faster than before the pandemic. Prices of services generally move more slowly than the cost of goods because they largely reflect labor costs, which are not directly affected by interest rates.
Central bank rate hikes have increased the cost of mortgages, auto loans, credit cards and many forms of business borrowing, in a concerted effort to slow growth and calm inflationary pressures. The Fed is trying to achieve a “soft landing” — raise borrowing costs just enough to curb inflation without tipping the economy into a deep recession.
The rate increases have had some impact, as year-over-year inflation has fallen from a peak of 9.1% in June 2022, the highest level in four decades, to just a third of this level in October.
Last week, Powell warned that if inflation did not slow down quickly enough, the Fed “would not hesitate” to raise rates further. Still, central bank policymakers have left their key short-term rate unchanged since July, and most economists believe the Fed is done raising rates.
Economists also welcomed Tuesday’s report. “The softer 0.2% [month over month] The rise in core consumer prices in October kills any remaining chance of a Fed rate hike in December, and we continue to expect inflation to fall further in the coming months, putting interest rate cuts soon on the agenda,” Capital Economics said in a note.
Prices accelerated for the first time in 2021 as consumers increased spending amid a fading pandemic. Much stronger demand rushed into crowded supply chains, leading retailers and other businesses to rapidly raise prices. Inflation has since eased as supply chains have improved and rising borrowing rates have weakened some sectors, notably housing.
But in his remarks last week, Powell said further reductions in inflation could require a slowdown in spending on top of further improvements to supply networks — a distinction that potentially portends further increases.
Economists closely monitor several indicators of inflation, including the cost of rent and housing, health insurance and services such as restaurants, entertainment and travel. Starting with the pricing report released Tuesday, the government is changing how it calculates health insurance costs, and these changes are expected to cause overall inflation rates to rise in the coming months.
Many economists say that one of the main reasons most Americans have a gloomy view of the economy, despite very low unemployment and steady hiring, is that the costs of the things they buy regularly – milk, meat, bread and other groceries – remain much higher than they were three years ago. years ago. Many of these items continue to become more and more expensive, albeit more gradually.