Inflation in the U.S. Falls to 3.2 Percent in October

Inflation in the U.S. fell to 3.2 percent in October, lower than economists’ expectations. This marks the first decline in four months.

Consumer prices rose by 3.2 percent year-on-year in October, down from an annual rate of 3.7 percent in September. The annual growth was slightly lower than economists had predicted, and prices remained unchanged month-on-month, reported the Financial Times.

The U.S. Federal Reserve kept interest rates stable at a 22-year high earlier this month, and investors have become increasingly convinced that rates have indeed peaked. Futures markets on Monday afternoon assessed a 13 percent probability of further rate increases at the Fed’s next rate-setting meeting in mid-December.

Core inflation (which excludes volatile food and energy prices) was also slightly weaker than economists had forecast, dropping from 4.1 percent to 4.0 percent year-on-year. Core inflation rose by 0.2 percent month-on-month.

Fed Chairman Jerome Powell emphasized last week that policymakers would not be ‘fooled by data from a few good months’ and that the central bank could further tighten monetary policy if necessary, although officials have not indicated an intention to raise rates immediately beyond the current range of 5.25-5.5 percent.

Stronger-than-expected GDP growth has raised fears that the slowdown in inflation could be coming to an end, but Powell said last week that they expect the pace of economic expansion to slow.

Instead of another rate hike, it is increasingly expected that the Fed will push back the timing of rate cuts deeper into 2024 if consumer prices remain equally high.

One potential obstacle is that greater confidence in the economy could reduce yields on government bonds, which in turn would lower the cost of capital for companies, potentially triggering a new rise in inflation, reported the FT.

The tightening of financial conditions in the stock and bond markets earlier this fall was welcomed by Fed officials, who said it could negate the need for another rate hike. This optimism has buoyed markets, causing conditions to loosen again and prompting some investors to warn of a so-called infinite loop.

– We will still need to see tight financial conditions to bring inflation down to two percent in a timely and sustainable manner – said Lorie Logan, President of the Dallas Fed and voting member of the Federal Open Market Committee.