Lower-than-expected price data in October could make another rate hike less likely.
WASHINGTON – Inflation in the United States slowed last month in a sign that the Federal Reserve’s interest rate hikes were continuing to cool the economy. Consumer prices skyrocketed has caused headaches for consumers over the past two years.
Tuesday’s report from the Labor Department showed prices falling or rising more slowly for a variety of goods and services, including gasoline, new and used cars, hotel rooms and homes. Headline inflation was unchanged from September to October, down from a 0.4% increase last month. Compared with the previous 12 months, consumer prices increased 3.2% in October, down from a 3.7% increase in September and the smallest year-over-year increase since June.
Excluding volatile food and energy prices, so-called core prices also slowed. They increased just 0.2% from September to October, slightly lower than the pace of the previous two months. Economists closely watch core prices, which are believed to be a good indicator of future inflation trends. On a yearly basis, core prices rose 4% in October, down from 4.1% in September, the smallest increase in two years.
“The inflation mania has broken,” said Bill Adams, chief economist at Comerica Bank. Rising gasoline production is holding back gas prices, home prices are rising more slowly after mortgage rates rise in 2023, and rents are also gradually increasing.” completed apartment.
Gas prices fell 5% from September to October and are down 5.3% from a year earlier. They continued to fall in November, suggesting that cheaper energy could also curb inflation this month. The average price at the pump was $3.35 on Tuesday, down 42 cents from a year earlier.
Grocery store prices rose 0.3% last month and 2.1% from a year earlier. While still above pre-pandemic inflation levels, the year-over-year increase was down from double-digit increases earlier this year. Bread and beef prices rose sharply in October and are much more expensive than a year ago. Milk and egg prices rose last month but have dropped from a year earlier.
Economists said lower-than-expected price figures in October made the Fed imposing another rate hike in October less likely. Fed officials, led by Chairman Jerome Powell, are considering whether their benchmark interest rate is high enough to contain inflation or if they need to impose another increase in the coming months.
Last week, Powell said that Fed officials are “not confident” that interest rates are high enough to contain inflation. The Fed has raised its benchmark interest rate 11 times in the past year and a half, to about 5.4%, the highest level in 22 years.
But the central bank has raised its key interest rate just once since May. Since the last meeting on November 1, a government report has indicated that Recruitment cooled in October compared to September, and at the same time the pace of wage growth slowed, thereby easing pressure on companies to raise prices in the coming months.
Adams, echoing other economists, said he thinks the Fed’s most likely next move will be to cut interest rates, possibly in mid-2024.
The prospect that the Fed could end its rate hike campaign and eventually cut rates fueled a rally in equity markets on Tuesday. The Dow Jones Industrial Average rose nearly 1.5% in mid-morning trading. The yield on the benchmark 10-year Treasury note fell to 4.44%, down from nearly 4.6%, reflecting investors’ expectations that borrowing rates will fall.
The Fed’s interest rate hikes have increased the cost of mortgages, auto loans, credit cards and many forms of business borrowing, part of a concerted effort to slow growth and ease inflationary pressures. . Central banks are trying to achieve a “soft landing” — raise borrowing costs just enough to contain inflation without pushing the economy into a deep recession.
“Things are going in a way that is very consistent with what (the Fed) wants,” said Eric Winograd, chief economist at AB Global, an asset management firm. landing. There is no guarantee that they will actually get there. But for now, that’s the story the data is telling.
Prices accelerated for the first time in 2021 as consumers ramped up spending amid the waning pandemic. The much greater demand had a direct impact on struggling supply chains, causing retailers and other companies to quickly raise prices. Inflation has eased as supply chains have improved and higher borrowing rates have weakened some sectors, especially housing.
Improved supply chains have helped reduce new and used car prices, with used car prices falling for five consecutive months. New car prices fell 0.1% in October despite concerns among many economists that the now-resolved autoworkers strike would reduce dealer inventories and push up prices. .
Apartment and housing rental costs in general also slowed in October after rising in September. Rents increased just 0.3% from September to October, half the pace of the previous month. Compared to a year ago, rents are still up 6.7%, a significant increase that makes housing more difficult to afford. Even with the smaller increase, rent and housing costs still accounted for two-thirds of the increase in underlying inflation from a year ago.
Many economists say the main reason most Americans have a gloomy view of the economy despite very low unemployment and steady employment is the cost of the things they buy regularly — gas, meat, bread and other groceries – still much higher than three years ago. formerly.