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US Inflation Slows More Than Forecast, Gives Fed Room for Discounts


(Bloomberg) – U.S. inflation cooled in October more than expected, providing hope that the fastest price increase in decades is fading and giving Federal Reserve officials the chance to state to reduce interest rate hikes.

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The consumer price index rose 7.7% from a year earlier, the smallest annual gain since the start of the year and down from 8.2% in September, the Labor Department reported on Thursday. Core prices, which exclude food and energy and are considered a better fundamental indicator of inflation, rose 6.3%, pulling back to 40-year highs.

The core consumer price index increased by 0.3% month-on-month, while the overall CPI increased by 0.4%. Both the increase as well as the monthly increase were below average economists’ estimates.

“I think the fundamentals of this report are really good, they’re supportive, there’s some evidence that we’re moving from peak inflation to lower,” said Matthew Luzzetti, chief US economist. at Deutsche Bank AG, said on Bloomberg Television. “Where are we going, I think is a big question.”

While the core price deceleration is good news, inflation remains too high for the Fed to take comfort in. Chairman Jerome Powell, who said earlier this month that officials need to see a consistent pattern of weaker monthly inflation, also indicated that interest rates are likely to peak higher than those seen by economists. previously envisioned policymakers.

The reduction in the cost of measuring medical care and used vehicles has limited the core measure. Higher housing costs contributed to more than half of the overall CPI increase.

Treasury yields fell while the S&P 500 index jumped at the open and the dollar index fell. Traders came close to valuation during the Fed hike by half a point in December, instead of 75 basis points, and cut it below 5%, where they see the top rate coming next year.

The median estimate in a Bloomberg survey of economists called for CPI to rise 0.6% month on month and rise 0.5% in core.

Fed officials will have both another CPI report and a jobs report before the end of the two-day policy meeting in mid-December.

What Bloomberg Economics says…

“The soft October core CPI print provides the Fed with a powerful justification to slow the pace of future rate hikes. Broader deflation across the commodity sectors and measurement bias in health care services – factors we expect to continue in the coming months – have helped decrease inflation in October”.

– Anna Wong, economist

For full notes, click here.

Meanwhile, rising inflation continues to weigh on American households and the economy at large. High prices have eaten away at wages and left many people tightening their belts or relying on savings and credit cards to keep spending.

Inflation and the economy’s broader performance played a role in Tuesday’s midterm elections, although opinion polls showed social issues proved a factor. greater factor than the pre-election poll suggested. As of Thursday morning, the outcome is still unclear, but it looks like Republicans will win a narrow majority in the House.

Operation Fed

While the Fed embarked on its most aggressive tightening campaign since the 1980s, the labor market and consumer demand, while cooling some, proved resilient for the most part. However, the housing market quickly deteriorated amid soaring mortgage rates.

Consumer price growth is expected to continue to slow next year, though some economists expect the path back to the Fed’s inflation target will include both a recession and rising unemployment.

Inflation is affecting economies around the globe, prompting the world’s strongest and most synchronized monetary tightening policy in 40 years and increasing risks of a global recession.

Accommodation costs – the largest component of services and account for about a third of the overall CPI – rose 0.8% last month, the highest level since 1990. The increase was driven by levels the strongest increase in the cost of staying at a hotel for more than a year.

While private-sector data points to stabilizing – or even falling – rents in a wide range of cities across the country, there is a lag between real-time changes and when those changes are realized. reflected in Department of Labor data. Bloomberg Economics estimates haven-related components will see a rise in prices over the next 2-3 months, then start to slow down.

Excluding food, energy and shelter, the CPI fell 0.1%, the lowest level since May 2020.

Monthly Movers

  • Food increased by 0.6%, the smallest increase this year

  • Apparel down 0.7%, biggest drop since April

  • Home furniture down 0.2%, most since January 2021

  • Health insurance fell by a record 4%

  • Overall health care service down 0.6%, most since 1971

  • Used cars drop 2.4%, the most since March

  • Airfares down 1.1%

While the Fed sets a 2% target based on a separate measure of inflation from the Commerce Department – the personal spending price index – the CPI is closely watched by policymakers, traders and the public. . Given the volatility of food and energy prices, the core index is often considered a more reliable barometer of core inflation.

Excluding food and energy, cost of goods fell 0.4%, the biggest drop since March. Low energy service prices increased by 0.5%.

Economists generally expect commodity prices to continue to fall due to changing consumer preferences, improving supply chains, and lowering commodity prices. However, services are likely to continue to weigh on wages and inflation for the foreseeable future.

A separate report on Thursday highlighted how high inflation is eroding workers’ purchasing power. Real average hourly earnings fell in October and were down 2.8% from a year earlier. After adjusting for inflation, annual wages have decreased each month since April 2021.

–With support from Augusta Saraiva, Chris Middleton, Liz Capo McCormick and Airielle Lowe.

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