The Consumer Price Index was flat in October, rising 0% on a monthly basis, down from the 0.4% rate recorded in September, the U.S. Bureau of Labor Statistics announced Tuesday. On a year-over-year basis, the inflation rate dropped to 3.2%, down from 3.7% in September.
A big drop in prices for fuel, used cars and airfare and a sharp slowdown in the pace of increases in food and shelter prices were major factors in the results.
The closely watched core CPI rate – which leaves out volatile food and fuel prices to provide a clearer picture of the underlying inflation trend – increased 0.2% on a monthly basis and 4% on an annual basis. Both numbers were better than expected, with the annual result hitting its lowest level in two years.
What the experts are saying: Overall, the response to the report was positive, if not downright celebratory, with stocks staging a major rally on the news as traders bet that the Federal Reserve was finished with rate hikes.
“If one was looking for evidence of a soft landing and a sustained economic expansion, look no further than the October consumer price index,” RSM chief economist Joseph Brusuelas wrote. “Sustained improvement in the overall inflation outlook underscores our view that the Federal Reserve will remain on pause at its December policy meeting and should be done hiking rates as the economic expansion continues.”
“A great number,” said Mike Konczal of the Roosevelt Institute, a left-leaning think tank. “Pay particular attention to the 6-month trend, which [Fed Chair Jay] Powell had emphasized was stuck throughout 2022. At the beginning of this year, the 6-month core CPI reading was 5.3 percent; it's now 3.2 percent, even as the economy added 1.9 million jobs.”
“Inflation's receding, baby,” said University of Michigan economist Justin Wolfers. “The underlying trend is inflation returning to near normal.”
Still, no one expects the Federal Reserve to soften its stance on inflation any time soon. “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,” Jeffrey Roach, chief economist at LPL Financial, said, per CNBC.
And some Fed officials have expressed doubts that the battle against inflation is over. “I’m just not convinced that inflation is on some smooth glide path down to 2%,” Federal Reserve Bank of Richmond President Thomas Barkin said Tuesday. “The inflation numbers have come down, but much of the drop has been partial reversal of Covid-era price spikes, which were driven by elevated demand and supply shortages. Shelter and shelter inflation remain higher than historic levels, so does services inflation.”
The bottom line: More good news on inflation, but it’s probably too early to declare victory.