Inflation on Track: Consumer Prices Rise as Expected in October
The latest data from the Bureau of Labor Statistics has revealed that consumer prices rose 2.6% over the prior year in October, matching economist expectations. This slight uptick from September’s 2.4% annual gain in prices keeps the Federal Reserve on track to lower interest rates again in December.
A Slow Grind Towards Progress
While inflation has been slowing, it remains above the Federal Reserve’s 2% target on an annual basis. According to Claudia Sahm, chief economist at New Century Advisors, “There is progress on inflation… We are pointed in the right direction, but it has been a slow grind.” This slow pace is reflected in the core Consumer Price Index (CPI), which strips out the more volatile costs of food and gas, and has climbed 0.3% over the prior month, matching September’s increase.
Uncertainty Ahead
The outlook for inflation remains uncertain, with economists warning of another potential inflation resurgence following the election of Donald Trump as the nation’s next president. Trump’s proposed policies, including high tariffs on imported goods, tax cuts for corporations, and curbs on immigration, have been viewed as potentially more inflationary compared to the current administration.
Federal Reserve Stays the Course
Federal Reserve Chair Jerome Powell has emphasized that the central bank does not make decisions based on expected policy changes from a new administration. “In the near term, the election will have no effect on our policy decisions,” he stated. Markets have continued to price in another 25 basis point cut in December, although the probability of the central bank holding rates steady has increased to over 40%.
Shelter Inflation Remains a Concern
The shelter index, which rose 4.9% on an unadjusted, annual basis, has contributed to over 50% of the monthly increase in overall inflation. Minneapolis Fed president Neel Kashkari has categorized housing inflation as “the big elephant that is still out there,” but remains confident that price increases will slow as new leases are signed at lower rates.
Other Notable Indexes
The index for rent and owners’ equivalent rent (OER) rose 0.3% and 0.4%, respectively, from September to October. The lodging away from home index rose 0.4% after falling 1.9% in September. Meanwhile, the energy index held steady month over month, and the food index increased 2.1% in October over the last year. Other indexes with notable increases over the last month include used cars and trucks, airline fares, personal care, education, and recreation.
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