New inflation data out Wednesday showed consumer prices rose as forecast in October, keeping the Federal Reserve on track to lower interest rates again in December.
The latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 2.6% over the prior year in October, a slight uptick from September’s 2.4% annual gain in prices. The yearly increase matched economist expectations.
The index rose 0.2% over the previous month, matching the increase seen in September and also on par with economist estimates.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in October climbed 0.3% over the prior month, matching September, and 3.3% over last year for the third consecutive month.
“There is progress on inflation,” Claudia Sahm, chief economist at New Century Advisors told Yahoo Finance following the data’s release. “We are pointed in the right direction, but it has been a slow grind. And this is another month that fits in that slow grind.”
Although inflation has been slowing, it has remained above the Federal Reserve’s 2% target on an annual basis. Over the past three and six months, the picture becomes even more muddled for the central bank.
For the month of October, the 3-month annualized rate for core CPI rose to 3.6% versus the prior 3.1%. The 6-month annualized rate held steady at 3.3%.
Compared to the current Biden administration, Trump and his proposed policies have been viewed as potentially more inflationary due to the president-elect’s campaign promises of high tariffs on imported goods, tax cuts for corporations, and curbs on immigration.
In a press conference following the latest rate cut, Federal Reserve Chair Jerome Powell said the central bank does not and will not make decisions based on expected policy changes from a new administration.
“In the near term, the election will have no effect on our policy decisions,” he said at the time. “We don’t know what the timing and substance of any policy changes will be. We, therefore, don’t know what the effects on the economy would be, specifically whether and to what extent those policies would matter for the achievement of our goal variables: maximum employment and price stability.”
Immediately following the data’s release, markets continued to price in another 25 basis point cut in December, although the probability investors put on the central bank holding rates steady increased to over 40% compared to roughly 30% one week ago, per the CME FedWatch Tool.
“It is clear that the Federal Reserve’s job is still unfinished and that markets are correct in repricing federal funds rate expectations going forward,” Raymond James’ chief economist Eugenio Aleman said in a note to clients following the report.
“Under this environment, it is only oil and gasoline prices that are keeping inflation contained. That is, any surge in oil and gas prices could severely compromise the Fed’s inflation target. The Fed should be particularly concerned about the services less energy component of CPI.”
Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Thursday, Nov. 7, 2024. (AP Photo/Mark Schiefelbein) ·ASSOCIATED PRESS
Shelter, food remain sticky
Notable call-outs from the inflation print include the shelter index, which rose 4.9% on an unadjusted, annual basis, matching September’s increase. The index rose 0.4% month over month after rising 0.2% in September.
Shelter contributed to over 50% of the monthly increase in overall inflation. Sticky shelter inflation has largely been blamed for higher core inflation readings, according to economists.
At Yahoo Finance’s Invest conference on Tuesday, Minneapolis Fed president Neel Kashkari categorized housing inflation as “the big elephant that is still out there” but did say he’s confident price increases will slow as new leases are signed at lower rates.
The index for rent and owners’ equivalent rent (OER) rose 0.3% and 0.4%, respectively, from September to October. Owners’ equivalent rent is the hypothetical rent a homeowner would pay for the same property.
The lodging away from home index rose 0.4% after falling 1.9% in September.
Shelter contributed to over 50% of the monthly increase in overall inflation during the month of October (Courtesy: Getty Images) ·LOUOATES via Getty Images
Meanwhile, the energy index held steady month over month after decreasing by 1.9% in September. On a yearly basis, the energy index was down 4.9%.
The food index increased 2.1% in October over the last year, with food prices rising 0.2% month over month — proving to be a sticky category for inflation. The index for food at home rose 0.1% in October after prices rose 0.4% from August to September while food away from home increased 0.2%.
Other indexes with notable increases over the last month include used cars and trucks (+2.7%) and airline fares (+3.2%). The indexes for personal care, education, and recreation also ticked higher.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
