Inflation heated up in October as expected

• Inflation accelerated as expected in October.
• The consumer price index increased 2.6% from October 2023, matching the forecast.
• The CPI report follows the Fed’s interest rate decision last week to cut rates by 25 basis points.

As expected by economic forecasters, inflation heated up in October.

The consumer price index sped up as expected to a 2.6% year-over-year growth rate in October from September’s rate of 2.4%.

Inflation had been cooling down for most of 2024. Before the latest reading, the last uptick in the headline year-over-year rate was in March.

Core CPI, which excludes volatile food and energy prices, rose 3.3% in October from a year ago, matching the forecast and the previous year-over-year increase.

Housing costs are still largely driving broader inflation. The shelter index rose by a year-over-year rate of 4.9%, which the Bureau of Labor Statistics said accounted for “​​over 65 percent of the total 12-month increase in the all items less food and energy index.”

The energy index was flat over the month and was down 4.9% in October from a year ago. The gas index fell 12.2% in October from a year ago.

The Federal Reserve will likely want to see signs of inflation continuing to come down to its 2% target as Federal Open Market Committee members decide whether to continue cutting interest rates. There are still a lot of data releases to come out before the year’s final scheduled FOMC meeting in December, including further reports for inflation measures like the CPI.

The Fed decided in its November meeting to cut interest rates by 25 basis points, which was largely expected and smaller than September’s 50-basis-point cut.

Before the latest CPI report, CME FedWatch showed investors were assigning around a 60% probability to a 25-basis-point cut in December. After the news release, that increased to around 80%.

“Overall, this inflation print is unlikely to derail the Fed’s rate-cutting cycle and we continue to expect the Fed to cut rates by 25 basis points at their final 2024 meeting next month,” Nathaniel Casey, an investment strategist at Evelyn Partners, said. “However, we remain vigilant of any further deviations in the inflation trajectory, given the resilience of the US economy and the potentially expansive fiscal policy that could accompany the Trump Presidency in January.”

November’s jobs report, to be published in early December, will also help Americans and the Fed better understand the labor market in the fall after employment readings in October were surprisingly weak amid hurricanes and strikes.

“We’re trying to be on a middle path where we can maintain the strength in the labor market while also enabling further progress on inflation,” Fed chair Jerome Powell said at a press conference on November 7.