Oct US inflation increases 0.4%, supporting Dec Fed rate hike
A key measure of US consumer prices recorded another solid increase in October, maintaining the Federal Reserve’s trajectory toward a potential interest rate hike next month. The consumer price index, excluding food and energy, increased by 0.3 percent from the previous month, as reported by the Bureau of Labour Statistics on Tuesday, surpassing estimates for the third consecutive month. Overall prices increased by 0.4 percent as the expenses for essential goods rose universally. The report indicates that price pressures persisted in the lead-up to this month’s midterm elections, during which Democrats regained control of both chambers of Congress, following campaigns that prominently addressed the cost of living. The Iran war, tariffs, and the data center boom have collectively contributed to the inflationary pressures observed this year.
It represents the final Consumer Price Index report that Federal Reserve officials will review prior to their policy meeting scheduled for December 8-9. Investors anticipate a rise in interest rates at the upcoming gathering to combat inflation, subsequent to a quarter-point increase in September and a decision to maintain rates in October. Fed Governor Christopher Waller stated earlier Tuesday that should the core CPI increase by 0.3 percent or more, the central bank might have to consider a more substantial, half-point adjustment in December. US Treasury yields increased, and stocks began the day on a downward trajectory following the release of the CPI, as investors heightened their expectations for a more substantial rate hike. “This report probably locks the Fed in for a hike in December and very likely another one in Q1,” said Thomas Simons. “If we don’t see movement on the deal with Iran in the in the short term and a resultant decline in energy prices, that next hike could be as soon as January.”
The BLS refrained from publishing year-over-year changes due to interruptions in data collection that occurred last October amid the government shutdown. Through October, the core CPI index increased by 3.7 percent on a three-month annualised basis – the highest rate in over two years – and rose by 2.7 percent on a six-month annualised basis, as per data. The report indicated widespread increases across a variety of everyday goods and services. Grocery prices experienced their most significant increase since April, highlighted by an unprecedented 5.1 percent rise in the prices of baby food and formula. Owners’ equivalent rent, a measure of housing expenses that constitutes the most significant portion of the CPI, increased by 0.3 percent. Electricity prices increased by 0.9 percent, while motor vehicle insurance prices rose at the highest rate seen in over a year. Petrol experienced a 1 percent increase in October, despite a significant decline in oil prices over the past week, driven by growing optimism regarding diplomatic initiatives aimed at resolving the conflict in the Middle East.
Other categories indicated that the energy shock persists in permeating the economy: Airfares increased by 0.4 percent, while prices for delivery services also saw a rise. Broader services prices, excluding energy and rents, increased by 0.4 percent, as per data. Health insurance prices experienced their most significant decline in over three years following the Bureau of Labour Statistics’ incorporation of a semi-annual update in October, which utilised industry data on premiums and benefits. However, a broad array of other medical care services recorded the largest increases observed in several months. Prices for recreation services experienced their most significant increase of the year last month. Some economists indicated that they anticipated upward pressure following recent announcements of price increases from streaming services such as Disney+ and Hulu. Core goods prices increased by 0.2 percent, despite a decrease in used-car prices.
Categories particularly exposed to tariffs – including household furnishings, appliances, and toys – experienced significant price increases. Smartphone prices experienced their most significant increase on record, coinciding with the launch of Apple Inc.’s new iPhone Duo model. The report also indicated that significant categories affected by the artificial intelligence expansion experienced a pause in October. Prices for computer software and accessories decreased by 1.5 percent, whereas the prices of computers, peripherals, and smart home assistants experienced their slowest growth in four months. A separate report Tuesday that combines the inflation figures with recent wage data indicated that real average hourly earnings remained relatively stable compared to the previous month, thereby extending a recent period of underperformance. The failure of wages to match the increasing prices played a significant role in the cost-of-living discontent that fuelled the “blue tsunami” during the midterm elections.
