Inflation in the United States recovered its downward trend in October, reducing for the first time in the last three months, and more than expected. Prices rose 3.2% compared to a year ago, when 3.3% had been forecast, down from 3.7% in September. This was seen as an encouraging slowdown, the result of the restrictive monetary policy of the Federal Reserve (Fed).
This slowdown is partly due to more moderate energy costs, which declined by 2.5%. Month over month, prices rose 0.1% compared to 0.4% in September. The Dow Jones opened up 300 points on a better-than-expected government report, while Treasury bonds fell sharply.
Despite still being far from the 2% set by the country’s central bank, after the tremendous impact on prices after the pandemic, this indicator offers a hopeful sign that persistently high prices are easing the grip on the US economy.
The most encouraging element, according to analysts, is that core inflation, which excludes the most volatile prices, such as food and fuel, grew by 0.2% and remained at 4%, below the expectations that They aimed at 0.3% and 4.1%. This is the core mark of the lowest inflation in two years.
This is the index that is generally most taken into account by Fed governors, which could extend their two consecutive pauses in interest rate hikes at the December meeting. In the one held at the beginning of this November, its president, Jerome Powell, left the door open to a new increase, after eleven increases since March 2022, which has left the range at 5.25%-5.50%, the highest level in 22 years.
Powell insisted in a speech last week that whether or not to raise rates is a matter for debate at the Fed and that they will decide based on the day to day. “We know that progress at 2% is not assured. Inflation has given us false signals. If it is necessary to further restrict monetary policy, we will not hesitate to do so,” he stressed.
Inflation has been declining sharply since 2022, when it reached 9.1% in June, a record in five decades. Now prices continue to rise due to the increase in the price of industry services, which affects everything from personal hygiene to technology or health care.
The fall in energy prices offset the 0.3% increase in food prices in October. The cost of housing, a key element of the index, rose 0.3% in October, half of what was registered in September, and 6.7% in the annualized value. Housing thus became for analysts a good sign of the taming of inflation thanks to this notable cooling last month.
Many experts expect inflation to continue to decline in 2024, even after the recent obstacles that have arisen. Goldman Sachs released a report on Monday suggesting that “the most complex part of inflation is now behind us.” He also reiterated that the conditions for inflation to return to its target territory are in place” and that “the restrictive blows of monetary policy are now part of the past.”
Other economists, such as Ian Shepherdson, agreed that all inflation indicators are going in the right direction and most have reversed the post-pandemic increase, although there are prices that still remain at a higher level.
Perhaps due to this circumstance, consumer sentiment surveys maintain a reduction in citizens’ confidence in the direction of the economy.
