Inflation rises 3.2% in October, less than expected

Inflation eased in October for the first time in months, providing some welcome relief to American consumers who have been crushed by unrelenting price increases. 

The Labor Department said Tuesday that the consumer price index, a broad measure of the price of everyday goods including gasoline, groceries and rent, was unchanged in October from the previous month. Prices climbed 3.2% from the same time last year. 

Both of those figures are lower than estimates by Refinitiv economists.

Other parts of the report pointed to cooling price pressures within the economy. Core prices, which exclude the more volatile measurements of food and energy, climbed 0.2%, or 4% annually. Both of those figures are lower than Refinitiv economists expected.

"October is just one fight in a long war against inflation, but we can count it as a victory," said Robert Frick, corporate economist at Navy Federal Credit Union.

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Still, the report indicates that while inflation has fallen considerably from a peak of 9.1%, it remains well above the Federal Reserve's 2% target. 

High inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.

Consumers continued to see some reprieve in October. The price of gasoline plunged 5% last month and is down 5.3% from the same time last year. The cost of used cars and trucks dropped 0.8% over the month and is down 7.1% compared with the same time one year ago. Airline tickets also fell 0.9% in October, following increases in both September and August.

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Other price gains proved persistent and stubbornly high in October. Shelter costs, which was the largest contributor to core inflation last month, rose 0.3% on a monthly basis and are up 6.7% over the past year.

Food prices, a visceral reminder of inflation for many Americans, also inched higher in October. Grocery costs rose 0.3% in October – up from 0.1% in September – and are up 2.1% compared with the same time last year.

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The Federal Reserve has signaled it is closely watching the report for evidence inflation is finally subsiding as policymakers try to cool the economy with a series of interest rate hikes. Officials approved 11 rate increases in a span of just 16 months, lifting the benchmark federal funds rate from nearly zero to the highest level since 2001.

The cooler-than-expected data on Tuesday has solidified many economists' expectations that the Fed is done hiking interest rates. Investors see a 100% chance that Fed officials hold interest rates steady at their final meeting of the year in December, according to data from the CME Group's FedWatch tool, which tracks trading.

Stocks jumped after the report, with all three of the major U.S. benchmarks rising.

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"The annual rate of core inflation decelerated to 4%, the smallest rate since mid-2021 and should likely keep the Fed from raising interest rates at next month’s meeting," said Jeffrey Roach, chief economist at LPL Financial. "Despite the deceleration, the Fed will likely continue to speak hawkishly and will keep warning investors not to be complacent about the Fed’s resolve to get inflation down to the long-run 2% target."