According to the latest release published today, in October, the rate of inflation in the United States decreased more significantly than anticipated.

Increasing loan costs are expected to have a greater impact on economic activities and companies’ ability to set prices. Thus, a slowdown in housing rents is predicted to be a key factor in reducing inflation in the following two quarters.

By next summer, achieving a 2% inflation rate seems feasible, which could lead to more aggressive market expectations for interest rate cuts.

The October Consumer Price Index (CPI) in the U.S. was lower than what was anticipated for both overall inflation and core inflation, which excludes food and energy.

The general inflation rate was 0% month-over-month and 3.2% year-over-year, compared to the predicted 0.1% and 3.3%, while the core rate was 0.2% month-over-month and 4.0% year-over-year, against forecasts of 0.3% and 4.1%.

Source: Financial Market

The largest component, owners’ equivalent rent, increased by 0.4% month-over-month, a decrease from the previous 0.6%. Energy prices dropped by 2.5%, with gasoline prices leading the decline at 5% month-over-month.

Prices for both used and new cars decreased, as did airline fares and hotel prices. Medical care costs, a significant uncertain factor due to changes in methodology, rose by 0.3% month-over-month but were down 0.8% year-over-year.

The „supercore” measure of inflation, which is services excluding energy and housing costs and closely monitored by the Fed due to its relation to wages and labor market tightness, showed a modest 0.2% month-over-month increase, bringing the annual rate down to 3.75%.

This data likely pleases the Federal Reserve and has reinforced the belief that interest rates have reached their peak. Only a slight increase of 1.5 basis points is expected at the January 2024 FOMC meeting, with over 90 basis points in rate cuts anticipated by the end of next year.

Photo by Pierre Blaché on Unsplash

Article based on a story from ING Bank as copyright owner