US inflation Rose The rate rose 2.6% on an annual basis last month, representing an increase from September when the Federal Reserve began cutting interest rates amid falling prices and signs of a weak labor market.
That matches the forecast of economists surveyed by FactSet that the consumer price index rose 2.6% in October. CPI increased 2.4% in September, When the Fed introduced a massive rate cut of 0.5 percentage points, followed by a second rate cut This month.
The modest increase on a month-on-month basis suggests that the Fed's fight to limit inflation to its 2% annual rate target could face a tough road ahead in the coming months. Prices of some types of goods and services, from housing to insurance products, are still rising rapidly, straining consumers' budgets and creating economic headwinds.
“Looking ahead to the next six months, we expect consumers and businesses will still be spending, but still more amid increased costs and rates,” said Gregory Deco, chief economist at EY, in a Nov. 11 research note. “Spending wisely.”
The Bureau of Labor Statistics said Wednesday that a key driver of last month's inflation increase was the housing market, with shelter prices rising 0.4% in October, contributing about half of the monthly increase. Transportation costs have also increased due to higher airfares and a 14% annual jump in auto insurance, the report said.
Despite the monthly rise in prices, the Federal Reserve is projected to cut rates for the third time this year at its December meeting, with two-thirds of economists surveyed by FactSet predicting a cut of 0.25 percentage points. Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said in an email that the latest CPI report was unlikely to derail, noting that the inflation data was in line with expectations.
“Bang-in-line core inflation leaves the Fed on track to cut rates in December,” Rosner wrote. “Following unseasonably warm autumn data, today's numbers calm fears of an imminent slowdown in the pace of rate cuts.”
Trump's policies and inflation
The inflation report is the first since the November 5 election, which gave former President Donald Trump another victory. But economists say the president-elect's economic policies, including broad-based tariffs on all imports and deporting millions of undocumented immigrants, could prove inflationary.
Trump's plans could increase inflation rates as much as 1 percentage point, Some Wall Street experts have estimated that would bring it to an annual rate of about 3.6% – above the Fed's 2% target.
Experts say if that happens, the Fed will slow down its pace of rate cuts to fight the current high inflation.
“Nonetheless, with uncertainty over fiscal and trade policies there is a risk that the Fed may choose to slow the pace of easing as the new year begins to cool,” Rosner said.