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The numbers: The cost of living was unchanged in October as cheaper gasoline took the edge off U.S. inflation, pointing to incremental progress in the Federal Reserve’s effort to get prices under control.
It was the smallest increase in 15 months. Economists polled by the the Wall Street Journal had forecast a 0.1% advance in the consumer-price index last month.
The rate of inflation over the past 12 months, meanwhile, slowed to 3.2% from 3.7%.
If food and gas are set aside, so-called core consumer prices rose a somewhat sharper 0.2% in October. The Fed views the core rate as a better predictor of future inflation trends.
While the yearly increase fell a tick to 4% and touched the lowest level in two years, the core rate has been stuck near 4% for the past several months. That suggests some stickiness to inflation and leaves the increase in prices twice as high as the Fed’s 2% goal.
The soft inflation reading could help persuade the Fed to leave interest rates alone at its last meeting of the year in mid-December.
Still, the central bank wants to see a further easing in prices soon, especially the core rate, or it could increase borrowing costs again.
Key details: The cost of gasoline dropped 5.3% last month and largely accounted for the flat CPI reading last month.
The cost of food rose 0.3% last month, however, adding to the stress on households. Grocery prices have risen 5% in the past year, following big increases in both 2021 and 2022.
The cost of shelter — the biggest expense for most families — rose a milder 0.3% last month.
But rents were up a sharp 0.5% on the month and 7.2% in the past year.
Medical costs showed a 0.3% advance in October and rose for the third month in a row. The increase largely reflected a change in how the government calculates them.
The effects of the new process could extend well into next year and potentially keep the official rate of inflation somewhat elevated.
Big picture: Inflation is subsiding, but senior Fed officials remain wary.
Some say inflation is moving “sideways,” and Fed Chair Jerome Powell himself said he’s on guard against “head fakes” that suggest the danger is past.
The Fed is likely to keep interest rates at current levels unless progress on inflation stalls.
Looking ahead: “October’s report had good news for both winning the long-term inflation fight and easing some short-term pain,” corporate economist Robert Frick of Navy Federal Credit Union said. “October is just one fight in a long war against inflation, but we can count it as a victory.”
“October’s cooler-than-expected CPI report keeps the Fed on course for rate cuts in 2024,” said Bill Adams, chief economist of Comerica Bank in Dallas.
Market reaction: The Dow Jones Industrial Average
DJIA
and S&P 500
SPX
were set to open sharply higher in Tuesday trading as investors reacted positively to the CPI report.
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
sank to 4.48%.
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