WASHINGTON: US inflation cooled in October by more than forecast, offering hope that the fastest price increases in decades are ebbing and giving Federal Reserve officials a chance to ease up on steep interest-rate increases.
The consumer price index was up 7.7% from a year earlier, the smallest annual advance since the start of the year and down from 8.2% in September, according to a Labor Department report released on Thursday.
Core prices, which exclude food and energy and are regarded as a better underlying indicator of inflation, advanced 6.3%, pulling back from a 40-year high in the prior month.
The core consumer price index increased 0.3% from the prior month, while the overall CPI advanced 0.4%. Both increases as well as the monthly rises were below the median economist estimates.
While the deceleration in core prices is welcome news, inflation remains much too high for comfort for the Fed. Chairman Jerome Powell, who said earlier this month that officials need to see a consistent pattern of weaker monthly inflation, also indicated interest rates would likely peak higher than policy makers previously envisioned.
Declines in the price gauges for medical care and used vehicles restrained the core CPI. Higher shelter costs contributed to more than half of the increase in overall inflation.
Stripping out food, energy and shelter, the CPI dropped 0.1%, the weakest reading since May 2020.
Food costs decelerated and used-car prices fell 2.4%. Gasoline prices increased 4%. Meantime, health insurance costs dropped a record 4%, leading to the sharpest slide in overall medical care costs since 1971.
The median estimates in a Bloomberg survey of economists called for a 0.6% monthly gain in the CPI and a 0.5% advance in the core reading.
Fed officials will have both another CPI report and jobs report in hand before the end of their two-day policy meeting in mid-December.
Meantime, elevated inflation continues to weigh on American households and the broader economy. High prices have eaten away at wage gains and led many to either tighten their belts or rely on savings and credit cards to keep spending.
While the Fed has embarked on the most aggressive tightening campaign since the 1980s, the labour market and consumer demand, while cooling some, have proved to be largely resilient. The housing market, however, has deteriorated rapidly amid soaring mortgage rates.
Consumer price growth is expected to moderate further over the coming year, though some economists expect the path back to the Fed’s inflation goal to include both a recession and a rise in the unemployment rate.
Inflation is affecting economies globally, spurring the world’s most aggressive and synchronised monetary policy tightening in 40 years and raising risks of a global downturn.
