By Mitesh
October Inflation: In October, a moderation in inflation was observed, attributed to reduced prices for gasoline and cars. This suggests that the Federal Reserve’s ongoing interest rate increases are effectively curbing the surge in consumer prices that has been impacting the finances of Americans.
According to the latest report from the Labor Department on Tuesday, the decline in gas prices played a significant role in cooling overall inflation, which remained stable from September to October, contrasting with the 0.4% increase recorded the previous month. Comparatively, consumer prices in October rose by 3.2% from a year ago, a decrease from September’s 3.7%.
Economists, anticipating a 3.3% inflation rate over the twelve months, were surprised by the lower-than-expected figures, as revealed by financial data provider FactSet.
Core prices, excluding the volatile categories of food and energy, also unexpectedly weakened. They only increased by 0.2% from September to October, slightly below the pace of the preceding two months. Monitoring core prices is crucial for economists as they are considered indicative of the future trajectory of inflation. On a year-over-year basis, core prices rose by 4% in October, down from 4.1% in September.
Lindsay Rosner, Head of Multi-Sector Fixed Income Investing at Goldman Sachs Asset Management, commented on the lower-than-anticipated Core CPI print, stating that it should reinforce the belief that the Fed will maintain its current stance in December.
The latest inflation data is pertinent as Federal Reserve officials, led by Chair Jerome Powell, deliberate on whether the current benchmark interest rate is sufficiently high to curb inflation or if additional rate hikes are necessary in the coming months. Powell recently expressed uncertainty about the adequacy of rates in taming inflation. Over the past eighteen months, the Fed has raised its benchmark interest rate 11 times, reaching approximately 5.4%, the highest level in 22 years.
Despite the overall moderation, the costs of various services such as rent, travel, and healthcare are still experiencing notable increases. These service-related expenses tend to change more gradually than the costs of goods and are influenced by labor costs, which are not directly impacted by interest rates.
The Fed’s rate hikes have contributed to higher costs for mortgages, auto loans, credit cards, and various forms of business borrowing, part of a strategic effort to slow economic growth and alleviate inflation pressures. The central bank’s objective is to achieve a “soft landing,” raising borrowing costs sufficiently to curb inflation without triggering a severe recession.
While the rate hikes have shown some effectiveness, with year-over-year inflation dropping from a peak of 9.1% in June 2022 to 3.7% in September, Powell cautioned that if inflation doesn’t abate quickly, the Fed will not hesitate to implement further rate increases. However, since July, the central bank has left its key short-term rate unchanged, and the majority of economists believe that the Fed has concluded its hiking cycle.
Economists are closely monitoring various inflation indicators, including the costs of rent and housing, health insurance, and services such as dining out, entertainment, and travel. Notably, starting with the most recent price report, the government is adjusting how it calculates health insurance costs, and these changes are expected to contribute to higher overall inflation rates in the coming months.
Despite low unemployment and consistent hiring, a prevailing gloomy economic outlook among Americans is attributed to the enduringly elevated costs of everyday items like milk, meat, and bread. While these items are still becoming more expensive, the pace of increase has slowed.
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