Inflation in the US Begins to Ease, Dropped to Lowest Level Since January

Consumer price inflation in the US has fallen to its lowest level since January, which immediately led to a recovery of American stock indices and government bonds, reports the Financial Times.

The annual consumer price index dropped from 8.2 percent in September to 7.7 percent in October. On a monthly basis, it rose by 0.4 percent, which is less than the 0.6 percent that economists had predicted. Thus, the trend of rising prices is gradually declining, as shown by data released by the US Bureau of Labor Statistics.

Following the announcement, S&P 500 index rose by nearly 3 percent as investors hoped that the Federal Reserve would ease its interest rate hikes, which it has used as the main tool to combat inflation. Yields on two-year US government bonds, which are particularly sensitive to monetary policy expectations, fell to their lowest level since the end of October.

Futures trading, where the price is agreed upon at a certain moment and the transaction is finalized in the future, indicated that investors believe it is less likely that the Fed will raise interest rates by an additional 0.75 percentage points in December.

Energy prices remain high

That inflationary pressures on consumers’ pockets are easing is also evidenced by the ‘core’ consumer price index, which excludes food and energy prices, and which rose by 0.3 percent compared to the previous month, significantly below the 0.6 percent recorded in September. Compared to the same period last year, core inflation is up by 6.3 percent.

However, after a decline in recent months, energy prices rose by as much as 17.6 percent in October compared to the same time last year, while in October they recorded a monthly increase of 1.8 percent, reports Business Insider.

Food prices rose by 10.9 percent compared to the same period last year and remain high, but the annual growth in October is lower than the annual growth recorded in September.

Relief in December and January?

– Inflation is still too high, but there is evidence that the Fed will begin to slow the pace of future interest rate hikes. The market has long awaited a reduction in inflation that is finally beginning to appear – said Christopher Rupkey, chief economist at FWDBONDS in New York, to Reuters.

After a meeting in early November, where the Fed raised interest rates to a range between 3.75 and 4 percent, Fed Chairman Jerome Powell said that the central bank could reduce the pace of increases in December or January.

 – The tools of the Federal Reserve are working to reduce inflation by decreasing demand for economic activities sensitive to interest rates. However, families’ needs for pocket money have little to do with interest rates, and potential job losses caused by excessive monetary tightening will only worsen the situation for the working class – wrote Sherrod Brown, chairman of the Senate Banking Committee, in a letter to Powell.

Although officials previously stated that they first needed to see data on slowing inflation before making decisions to ease their monetary policy, they are now changing their tune and considering how much interest rates have already risen this year, as well as the fact that it takes time for those changes to impact the economy. Therefore, they are placing less emphasis on each new report of the core consumer price index.

– We need to see inflation falling, and good evidence of that would be a series of lower monthly results. But I have never thought of that as an appropriate measure for slowing the pace of interest rate increases or for identifying the appropriate restrictive level we are aiming for – Powell said last week.

The higher interest rates rise and the longer they remain at levels that restrict economic activity, the greater the chances that the economy will fall into recession, Powell warned.

Signs of Slowing

Most economists expect an economic downturn next year, with the unemployment rate rising significantly above the current level of 3.7 percent. For comparison, the unemployment rate in September was 3.5 percent. Already, the report from the US Department of Labor showed that the number of Americans filing for unemployment benefits rose moderately last week, reports Reuters. Also, the growth in job numbers is slowing, as is the growth in employment.

Still, there were 1.9, or nearly two job openings for every unemployed person in the US at the end of September.