WASHINGTON–The consumer price index rose less than expected in October, an indication that inflation pressures may be starting to cool, although two economists said it’s likely the Fed will again raise rates in December.
The Bureau of Labor Statistics said the consumer price index (CPI) increased 0.4% for the month and 7.7% from a year ago.
The data show that excluding volatile food and energy costs, so-called core CPI increased 0.3% for the month and 6.3% on an annual basis, compared with respective estimates of 0.5% and 6.5%.
“This is the lowest increase for the year as prices for used cars, air travel, and medical care declined in October,” said CUNA Senior Economist Dawit Kebede. “The increase in core-CPI (prices excluding food and energy) also slowed down from 0.6% in September to 0.3%. CUNA forecasts inflation by year-end will be 7.5%.
“Housing price contributed for over half of the 0.4% increase in overall monthly prices. If housing remained flat compared to September, the annualized October inflation would have been lower than 2.4%,” Kebede continued. “There is a lag of up to 18 months between current market price and the CPI for housing. The CPI reflects increases from a few months ago but current market price for housing is cooling down.
“Overall, the October inflation report shows signs of prices slowing down. A 7.7% headline inflation is still much higher than the Federal Reserve's target. Hence, the Fed may raise interest rates by 50 basis points in December.”
NAFCU Response
"According to data released by the Bureau of Labor Statistics (BLS), the overall consumer price level climbed by 0.4% in the month of October. This was lower than expected and is hopefully an indication that the economy is cooling off,” said NAFCU Chief Economist and Vice President or Research Curt Long.
“The cost of shelter in October set another record for the highest monthly growth rate in over 30 years at 0.8%, but that figure was spurred by a large increase in hotel prices. Housing rental costs decelerated during the month and are likely to begin a precipitous decline over the coming months as new lease costs decline. Used car prices fell at an accelerated rate and for the fourth consecutive month. While new car prices advanced in October, the rate of increase slowed as production improves. Although headline inflation has been slowing for several months, measures of the breadth of price increases had continued to climb. However, median inflation was steady last month and trimmed mean inflation slowed on a year-over-year basis for the first time in nearly two years.
“The report supports the step down to a 50-basis point hike in December that the FOMC foreshadowed last week, and another report or two similar to this one would present the fodder for an outright halt to rate increases," said Long.
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