The consumer price index rose less than expected in October, indicating that while inflation is still a threat to the US economy, pressures may begin to ease.
The index, a broad measure of the costs of goods and services, rose 0.4% for the month and 7.7% from a year ago, according to a Bureau of Labor Statistics release on Thursday. The respective Dow Jones estimates called for increases of 0.6% and 7.9%.
Excluding volatile food and energy costs, the so-called core CPI rose 0.3% on the month and 6.3% year on year, against respective estimates of 0.5% and 6.5%.
A 2.4% drop in used car prices helped push inflation numbers down. Clothing prices fell 0.7% and medical services fell 0.6%.
“The report overstates the case for inflation, but it makes it a case for inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s pretty clear that inflation has definitely peaked and is continuing. All trend lines suggest it will continue to moderate going forward, assuming nothing goes wrong.”
Markets reacted strongly to the report, with the Dow Jones Industrial Average rising more than 1,000 points. Treasury yields fell sharply, with the policy-sensitive 2-year note dropping 0.3 percentage points to 4.33%.
“The inflation trend is a welcome development, so it’s great news for the report,” said Michael Arone, chief investment strategist at State Street Global Advisors. “However, investors are still gullible and they’re still looking forward to the Powell pivot, and I’m not sure he’s coming anytime soon. So I think the excitement this morning is a bit over the top.”
The “pivot Powell” comment refers to market expectations that Federal Reserve Chairman Jerome Powell and his central bank colleagues will soon slow or halt the aggressive pace of interest rate hikes they deploy in an attempt to bring inflation down.
Even with the inflation rate slowing, it remains well above the Fed’s 2% target, and several parts of the report show that the cost of living remains high.
“A month of data doesn’t equal a win, and I think it’s really important to think that this is just positive information, but we’re looking at a whole set of information,” the company said. San Francisco Fed President Mary Daly. in response to CPI data.
“We must be determined to bring inflation down to 2% on average,” she added during an interview with the European Economic and Financial Centre. “That’s our goal, that’s what Americans depend on, and that’s what we’re committed to doing. So we’ll continue to adjust the policy until that job is fully done.”
Housing costs, which are about a third of the CPI, rose 0.8% for the month, the biggest monthly increase since 1990, and 6.9% from a year ago , their highest annual level since 1982. In addition, fuel oil prices exploded 19.8% more for the month and up 68.5% year-over-year.
The food index rose 0.6% for the month and 10.9% year-on-year, while the energy index rose 1.8% and 17.6%, respectively.
Due to rising inflation, workers suffered another pay cut in October. Real average hourly earnings fell 0.1% for the month and 2.8% on a yearly basis, according to a separate BLS statement.
A separate report from the Labor Department on Thursday showed jobless claims rose to 225,000 last week, up 7,000 from the previous week.
The latest inflation reading comes as Federal Reserve officials rolled out a series of aggressive interest rate hikes in a bid to bring down inflation which is hovering around its highest levels since the start of the 1980s.
In early November, the central bank approved its fourth consecutive hike of 0.75 percentage points, taking its benchmark rate to a range of 3.75% to 4%, the highest level in 14 years. Markets expect the Fed to continue to hike, but perhaps at a slower pace before the fed funds rate hits around 5% early next year.
Traders quickly changed their expectations for the Fed’s next move. Futures linked to the federal funds rate were pointing to an 80.6% chance of a 0.5 percentage point move in December, down from 56.8% a day ago, according to data from the CME Group.
“A data point doesn’t make a trend. What we have to hope for is that we get another dip [in CPI] with the next report, which will be the day before the next Fed meeting,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. positive. … It’s kind of like a coil spring more than anything.”
Reducing inflation is key as the holiday shopping season approaches. A recent survey by Clever Real Estate found that about 1 in 3 Americans plan to cut spending this year due to rising prices.