U.S. consumer inflation rose in line with Wall Street's projections last month on both sequential and annual bases, boosting bets that the Federal Reserve will again cut interest rates by a quarter percentage point in December. The consumer price index increased 0.2% in October, matching the growth rate seen from July through September, as reported by the Bureau of Labor Statistics.
Annually, inflation accelerated to 2.6% from September's 2.4% pace. Both measures were in line with forecasts from a Bloomberg-compiled survey. Core inflation, which removes the volatile food and energy components, remained unchanged at 0.3% in October compared to September, coinciding with analysts' estimates.
On an annual basis, core inflation stood at 3.3%, aligning perfectly with the Bloomberg consensus. "Progress on the inflation front has slowed to a snail's pace in recent months as services inflation is looking increasingly sticky, while much of the disinflationary pressure from falling goods prices is now in the rear-view mirror," explained TD Economics Senior Economist Thomas Feltmate in a Wednesday note.
"All of this suggests that the last leg lower on returning inflation to the Fed's 2% target is going to occur much more gradually." The Fed's monetary policy setting committee lowered interest rates by 25 basis points last week, following a significant 50-basis-point cut in September. Market bets for another quarter-percentage-point reduction at the Federal Open Market Committee's December meeting climbed to 79% on Wednesday from 59% on Tuesday, based on data from the CME FedWatch tool.
The remaining odds indicate no change in policy. Monthly food price growth cooled to 0.2% from 0.4% in September, while energy prices remained flat after declining 1.9%. A decrease in gasoline prices was somewhat countered by a 1% month-to-month increase in electricity costs, Feltmate noted. On an annual basis, food prices were up by 2.1%, while the energy index dropped by 4.9%. Shelter costs grew at a quicker pace of 0.4% in October compared to 0.2% in the prior month and rose 4.9% year-over-year.
Shelter accounted for over half of the overall monthly increase, as reported by the BLS. Increases were noted in used cars and trucks, airline fares, medical care, and recreation, while categories such as apparel, communication, and household furnishings experienced softer pricing trends, according to the BLS. "On a year-ago basis, services prices are up 4.8% or roughly two percentage points above its pre-pandemic pace of growth when inflation was running closer to 2%," Feltmate concluded..