US Consumer Prices Stable in October, Indicating Sluggish Inflation
According to the latest data from the US Labor Department’s Bureau of Labor Statistics, consumer prices in the United States remained unchanged in October, reflecting lower gasoline prices. Furthermore, underlying inflation displayed signs of slowing down, which supports the notion that the Federal Reserve may have concluded its interest rate hikes.
In September, consumer prices experienced a 0.4% increase, but the following month, they remained steady. Over the past 12 months leading up to October, the Consumer Price Index (CPI) rose by 3.2%, compared to the previous 3.7% increase witnessed in September. Economists surveyed by Reuters had anticipated a 0.1% monthly gain and a 3.3% year-on-year increase in CPI.
While year-on-year consumer prices have receded from their peak of 9.1% in June 2022, the trend toward disinflation has somewhat halted due to the strong economy driven by a relatively tight labor market. It is worth noting that inflation is running higher than the Federal Reserve’s target of 2%.
Although financial markets and most economists believe that the US central bank’s tightening policy has reached its conclusion, a view that Federal Reserve Chair Jerome Powell and other policymakers have resisted, Powell mentioned last week that if it becomes appropriate to tighten policy further, we will not hesitate to do so. Since March 2022, the Federal Reserve has increased its policy rate by 525 basis points, reaching the current range of 5.25%-5.50%.
Excluding the volatile food and energy components, the CPI grew by 0.2% in October, primarily driven by increased costs in rental housing. This so-called core CPI had previously risen by 0.3% for two consecutive months.
In the October release, the Bureau of Labor Statistics implemented changes to its methodology for calculating health insurance prices, resulting in boosted costs. The previous method relied on an annual calculation using aggregated health insurance premium and benefit information. However, concerns arose regarding the volatility of the annual data and the time lag in incorporating financial data related to health insurance.
The new methodology introduces smoothing techniques to the health insurance index, aiming to minimize volatility and incorporates semiannual financial data, thus reducing the lag by six months. The Bureau of Labor Statistics will update retained earnings every six months using half-year data, while also calculating a two-year moving average to smooth changes in retained earnings.
The core CPI, which excludes food and energy, advanced by 4.0% on a year-on-year basis in October after a 4.1% increase in September. This data suggests ongoing inflationary pressures in the US economy.
In conclusion, the latest figures indicate that US consumer prices remained stable in October, with inflation showing signs of deceleration. While these trends support the notion that the Federal Reserve’s interest rate hikes may have concluded, policymakers remain vigilant and ready to take further action if necessary.
