The latest Consumer Price Index (CPI) report brought in some good news last week as the U.S. Bureau of Labor Statistics indicated that inflation decelerated to its slowest pace since January. The CPI increased by 7.7% in October compared to the year prior, down from 8.2% in September and June’s forty-year high 9.1% rate. Prices rose by 0.4% between September and October, the same as the previous month. Shelter costs, which account for nearly one-third of the overall CPI, contributed over half of the monthly all-items increase. They rose by 0.8% between September and October, the highest since August 1990.
The core CPI, which excludes the more volatile prices of food and energy, reached 6.3% in October in year-over-year comparison, down from 6.6% in September, which was its biggest increase since August 1982. “This morning’s CPI data were a welcome relief, but there is still a long way to go,” said Dallas Fed President Lorie Logan in a speech following the announcement.
The Fed Remains Cautious
Although slower-paced inflation is an encouraging sign that the aggressive interest rate hike policy initiated by the Federal Reserve Bank is working, the Fed is still poised to announce more increases at its upcoming meeting in December. The question is, by how much?
The U.S. labor market remains strong despite showing signs of cooling down, with the unemployment rate rising to 3.7% in October. Wages are growing but not enough to keep up with inflation, with the average hourly earnings adjusted for inflation, decreasing 0.1% in October from September. However, U.S. retail sales increased sharply by 1.3% in October, possibly due to an early start to Christmas shopping.
Despite Fed officials hinting they would strongly consider approving a smaller increase of 50 bps at their next meeting, December 13-14, others, such as Kansas City Fed President Esther George, are more pessimistic. “For me, the more important question for this committee, looking out over next year, is being careful not to stop too soon,” she said in an interview. “This was the lesson of the 1970s and ’80s, in thinking, ‘Oh, we’ve got it now, we can stop,’ and then you find that inflation really reemerges in some way.”
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.
