October brought in some good news on the inflation front. According to the latest Consumer Price Index (CPI) report released by the Bureau of Labor Statistics, prices for goods and services rose by 3.2% over the past year, down from the 3.7% figure reported in August and September. For the first time since July 2022, prices were flat compared to the month prior. In addition, the so-called core CPI—a measure closely watched by economists as it excludes the more volatile prices of food and energy—rose 4% over the prior year, the smallest 12-month change since September 2021.
The headline CPI was largely driven by the cooling energy prices, which declined 2.5% from the previous month. The gasoline index fell a whopping 5% in October after dropping 2.1% the month prior.
Shelter costs, which make up about a third of the overall CPI, rose 0.3% in October, half the gain in September as the year-over-year increase eased to 6.7%. According to economists, this could be a step in the right direction for a sustained decline in core inflation.
On the other hand, grocery prices rose by the most since July, reflecting higher costs for basics like meat, milk, and bread. They were up 0.3% in October after increasing by 0.2% in each of the last three months.
The End of Interest Rate Increases?
The deceleration of inflation is an encouraging sign that the aggressive interest rate hiking policy initiated by the Federal Reserve Bank since March 2022 is bearing fruit. However, although the 3.2% reading is an undeniable improvement from the 40-year peak of June 2022, there is still a way to go to reach the Fed’s targeted 2% rate. “Despite the deceleration, the Fed will likely continue to speak hawkishly and will keep warning investors not to be complacent about the Fed’s resolve to get inflation down to the long-run 2% target,” said Jeffrey Roach, chief economist at LPL Financial.
Fed Chair Jerome Powell has repeatedly been vocal in his resolve to avoid cutting interest rates too early. While the Fed may be done with hikes, the institution will likely maintain its baseline interest rate to between 5.25 and 5.5%, the highest level in 22 years, for a while longer, including at its next meeting scheduled for December 12-13.
The Fed is also closely monitoring other factors, particularly the job market, to make its decision. The labor market remains strong despite showing some signs of easing. Real average hourly earnings adjusted for inflation increased 0.2% on a monthly basis in October but were up just 0.8% from a year ago, according to a separate Labor Department release, rising for the first time in three months. However, US job growth slowed by more than expected, with 150,000 nonfarm payrolls added in October, and the unemployment rate rose to an almost two-year high of 3.9%
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
