Federal Reserve officials, investors, and households cheered after the US consumer prices saw a cool-off. However, there is still a long way before inflation finally ends.
October’s inflation rate of 7.7% was the lowest since January. The Russia-Ukraine war then triggered a global commodity surge, leading to pumped-up prices.
The slowdown in price increases across categories involving food, used cars, and apparel suggests that the fastest price increase seen in a decade is finally ebbing in the largest economy in the world. If the trend is sustained, it gives a chance to eth central bank to moderate its earlier aggrieve rate hikes.
US Stocks rebounded after the report having been battered massively in the crypto crash. The Bloomberg dollar index fell, and treasury yields declined sharply. Traders are factoring in half percent hike in December and cutting borrowing costs below 5% before they peak next year.
Still Early Days
However, the figures are at an early stage where inflation is tamed after being entrenched at the top for months and above pre-pandemic levels. Tiffany Wilding, an economist at Pacific Investment Management, said the inflation is finally softening. However, she expects the rate to increase again in the next few months before the Fed settles in the range of 4.5% to 5% before pausing.
Mary Daly, president of the San Francisco Fed, said the report was good news. In contrast, Lorie logan, Fed president of Dallas, said it should be appropriate for the rate increase to slow down.
Jerome Powell, Fed Chair, said early this month that officials need to look for a consistent trend in weaker inflation before they could pass the interest rate hike. In mid-December federal reserve will have the reports of jobs and CPI inflation with them before the two-day monetary policy meeting.
High inflation has affected American households. The price increase has neutralized the gains in the wage increase. Consumers have been tightening their purchases or depending on credit cards and savings for spending.
Not Enough Data
Sal Guattari, a senior economist with BMO Capital Markets, said that there is only one-month data which is not enough to inspire confidence for inflation which is just at its peak.
Health insurance which was contributing to the pressure on price, dropped 4% because of a change in source data. This anomaly was also a reason for the drop in prices in October.
Demand for services and Rent may keep inflation elevated. The data where it shows rent cooling or declining, it will still take to reflect in official government data. The rents, which contributed o more than a third of the CPI, contributed to the overall price increase.
The economy’s performance and inflation affected President Joe Biden’s ratings in Tuesday’s Midterm elections. Exit polls suggested social issues proved to be a big factor.
