Inflation falls below 8% annual rate in October, exceeding expectations | Economy

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Inflation rose to an annual rate of 7.7% in October, better than expected but still well above the level desired by the Federal Reserve, the Bureau of Labor Statistics reported Thursday.

Economists were counting on an annual rate of 7.9%.

The monthly increase was 0.4%, the same as in September.

The core consumer price index, excluding the often volatile food and energy prices, came in at 6.3% year on year, down from 6.6% in October and 0.3% after rising 0.6% last month.

Overall inflation has been on a downward trend since hitting 9.1% in June as energy prices soared following the invasion of Ukraine by Russia in February and disruptions to global supply chains.

The June figure sparked a more aggressive move by the Fed to rein in inflation, with four straight 75 basis point hikes in the fed funds rate, a trigger for many other interest rates that pushed borrowing costs at their highest levels in years. The average rate on a 30-year fixed-rate mortgage, for example, is now above 7% from the 3% range a year ago.

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The Fed is looking to rein in demand across the economy and while it has had success in the housing sector, where sales are down about 30% from a year ago, other parts of the economy are showing resilience. The labor market is still very strong, although the most recent data has shown some moderation in the hiring outlook.

“The monthly CPI is a regular reminder that inflation is outpacing what is otherwise fairly strong household income growth, further validating the bitter financial mood of U.S. consumers,” said Greg McBride, chief financial analyst for Bankrate, before the report.

“Despite half a dozen interest rate hikes by the Federal Reserve, any widespread, significant and sustained easing of inflationary pressures remains elusive,” McBride added. “As a result, Fed Chairman Jerome Powell said there was ‘some way to go’ to raise interest rates to a level that dampens demand enough to contain inflation.”

The economy was one of the main issues in Tuesday’s midterm elections, but other factors such as abortion, threats to democracy and the imminent possibility of another Donald Trump presidential election also weighed in. on the results. Results on Wednesday morning showed control of Congress remains undecided, although Republicans were favored to capture the House of Representatives.

Many granular measures of inflation are showing some improvement, but broader official government data is lagging behind and reflects what happened a month or more ago. Business surveys have shown that fewer are expecting price increases in the coming months and that wage increases have moderated since the start of the year.

A survey of labor market data from Lightcast economists found that “median salaries are down 0.1% among all assignments and down 0.2% among Fortune 500 companies, while the average posted salary is down 0.2% across all assignments.”

“This contrasts sharply with the dramatic 1.1% (5.1% for Fortune 500) increase in median posted salaries and 0.2% (4.8% for Fortune 500) average posted salaries between March and June of this year,” Lightcast found.

“The Fed is particularly concerned about core categories because continued price pressures run the risk of inflation becoming more entrenched in the economy as well as in the psychology of people and businesses, affecting behaviors,” wrote Jose Torres, senior economist at Interactive Brokers, on Wednesday.

“Fed tightening has contributed to some declines in goods prices through demand destruction, but services and rents are much more inelastic and will require further increases in the unemployment rate to ease,” Torres added.

And on Thursday morning, the National Association of Realtors reported that the median price of an existing single-family home rose 8.6% from a year ago, down from double-digit gains recorded earlier this year.

The continuation of inflation beyond the average annual target of 2% chosen by the Fed guarantees that the central bank will not give up its fight against inflation. This is why many observers predict that a recession will be the result.

“The economy will likely fall into a recession again in the spring/summer of 2023, as it takes around 12-15 months for the economy to feel the full effect of rate hikes,” said Gene Goldman, chief investment officer at Cetera Investment. Management. “But we expect it to be soft on strong housing and labor fundamentals (although both are likely to be hit by the Fed).”

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