US Inflation May Have Picked Up In Oct After Months Of Easing

Key factors contributing to the potential inflation rise include higher used car prices and airfares. However, factors like falling clothing and energy costs could offset these increases

Annual inflation may have risen in October for the first time in seven months, a sign that price increases might be leveling off after steadily cooling for more than two years.

Consumer prices are thought to have increased 2.6 per cent from 12 months earlier, according to a survey of economists by the data provider FactSet, up from 2.4 per cent in September. Measured month to month, prices are believed to have ticked up 0.2 per cent from September to October, the same as in the previous month.

Excluding volatile food and energy costs, so-called core prices are forecast to have risen 3.3 per cent from a year earlier, unchanged from the previous month. From September to October, core prices are expected to have risen 0.3 per cent for a third straight month — a pace that, if sustained, would exceed the Federal Reserve's 2 per cent inflation target.

An uptick in prices could fuel concerns in financial markets that progress in taming inflation might be slowing. It might make the Fed less inclined to cut its key interest rate in December and next year, as its officials have previously indicated they likely would. Still, most economists think inflation will eventually resume its slowdown. Consumer inflation, which peaked at 9.1 per cent in 2022, has since fallen steadily, though overall costs are still about 20 per cent higher than they were three years ago.

The price spike soured Americans on the economy and on the Biden-Harris administration's economic stewardship and contributed to Vice President Kamala Harris' loss in last week's presidential election. Yet Donald Trump's election victory has raised considerable uncertainty about where inflation might be headed and how the Fed would react if it reaccelerated. Trump has vowed to reduce inflation, mostly by ramping up oil and gas drilling.

But mainstream economists have warned that some of his proposals, notably substantially higher tariffs on US imports and mass deportations of migrants, would worsen inflation if fully implemented. Stock prices surged in the wake of Trump's election victory, mostly out of optimism that his proposed tax cuts and deregulation would boost the economy and corporate profits. But bond yields also jumped, likely reflecting fear that inflation could stay elevated or even increase. In addition, the economy is growing faster than many economists had expected earlier this year. It has expanded at nearly a 3 per cent annual rate over the past six months, with consumers, particularly those with higher incomes, spending freely and fueling growth.

“Tax cuts and tariffs, among other policy proposals, have the potential to materially impact inflation, inflation expectations and economic growth,” said Seema Shah, chief global strategist at Principal Asset Management.

“With uncertainties around tax and trade policies, inflationary pressures, and economic resilience, the Fed is likely to slow its rate-cutting pace.” Higher used-car prices are thought to have raised overall inflation last month. Airfares, too, may have helped fuel inflation.

But clothing costs are believed to have declined, along with prices for groceries, gas and other energy sources.

At a news conference last week, Fed Chair Jerome Powell expressed confidence that inflation is still heading down to the central bank's 2 per cent target, though perhaps slowly and unevenly. “We feel like the story is very consistent with inflation continuing to come down on a bumpy path over the next couple of years and settling around 2 per cent,” Powell said.

“One or two really good data months or bad data months aren't going to really change the pattern at this point now that we're this far into the process.” Powell also noted that most sources of price pressures are cooling, suggesting that inflation isn't likely to accelerate in the coming months. Wages are still growing and have outpaced prices for the past year and a half. But Powell noted that wages aren't rising quickly enough to boost inflation.

A survey released by the Federal Reserve Bank of New York found that consumers expect prices to rise just 2.9 per cent in the next 12 months, which would be the lowest such measure in nearly four years. Lower inflation expectations are important because when consumers expect milder price increases, they're less likely to act in ways that raise inflation, such as accelerating their purchases or demanding higher pay to offset higher prices.

Another potential source of relief for Americans' budgets is in apartment rents. They are now barely rising on average nationwide, according to the real estate brokerage Redfin. Its measure of median rent was just 0.2 per cent higher than it was a year ago in October, at $1,619, though that figure reflects rents only for new leases.

The government's measurement of rents is rising faster because it includes existing rents. Many landlords are still raising monthly payments to reflect higher costs for new leases over the past three years.