Inflation in the United States picked up slightly in October, rising to an annual rate of 2.6%, according to data released by the Bureau of Labor Statistics (BLS) on Wednesday. The increase, driven primarily by a rise in housing costs, was in line with Wall Street expectations. The consumer price index (CPI) showed a monthly increase of 0.2%, while core inflation, which excludes volatile food and energy prices, rose by 0.3% for the month, bringing the annual core rate to 3.3%.
The uptick in inflation, though modest, follows six consecutive months of slowing price growth, reflecting both progress in controlling inflation and ongoing challenges in areas like housing. The shelter index, which accounts for about one-third of the CPI, increased by 0.4% in October and contributed to more than half of the overall increase. On an annual basis, shelter prices were up 4.9%.
Stock market futures rose slightly following the release, while Treasury yields fell, signaling market optimism that the Federal Reserve may continue its gradual easing of monetary policy. "No surprises from the CPI, so for now the Fed should be on course to cut rates again in December," said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. However, she cautioned that uncertainties, including potential new tariffs under the incoming Trump administration, could complicate the Fed's outlook for 2025.
Energy prices, which had been a drag on inflation for several months, remained flat in October, while food prices edged up by 0.2%. Over the past year, energy costs have declined by 4.9%, contrasting with a 2.1% increase in food prices. Used vehicle prices rose by 2.7% for the month, contributing to the upward pressure on the CPI, while motor vehicle insurance dipped by 0.1%. Airline fares also saw a sharp increase, rising by 3.2%, while egg prices fell by 6.4% but remained 30.4% higher than a year ago.
Despite the overall moderation of inflation from its peak of 9.1% in June 2022, economists warned that the final stretch to bring it fully under control will be challenging. "The bigger story on inflation is that, yes, prices are still going up, but the rate at which they're going up has declined significantly," said Stephen Juneau, an economist at Bank of America. He added that taming the remaining inflationary pressures, particularly in housing, will be a gradual process.
October's inflation data underscores both progress and persistent risks. While the Federal Reserve has already lowered its key interest rate by 0.75 percentage points this year, markets are now recalibrating expectations for further cuts. Traders currently anticipate about three-quarters of a percentage point in additional cuts through 2025, a reduction from prior forecasts.
The inflation picture is further complicated by political factors. President-elect Donald Trump has proposed a series of policies, including increased tariffs and infrastructure spending, which could impact inflation in unpredictable ways. Larry Summers, an economist and former U.S. Treasury Secretary, warned that Trump's proposals could "cause an inflation shock significantly greater than the one the country suffered in 2021."
Despite these potential headwinds, underlying inflation trends have remained relatively stable, giving the Fed room to continue its easing measures. "With underlying inflation holding the line and not showing an acceleration, that leaves the Federal Reserve on track to cut rates further in December," said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.
