The latest data from the Commerce Department reveals that consumer price increases picked up pace last month, indicating a halt in the steady decline of inflation witnessed over the past two years. In October, consumer prices rose by 2.3% from a year earlier, up from 2.1% in September, although still slightly above the Federal Reserve's 2% target.
Core prices, which exclude volatile food and energy categories, also saw an increase, climbing to 2.8% last month from a year earlier, compared to 2.7% in September. Economists consider core prices as a more reliable indicator of future inflation trends.
While inflation has significantly dropped from its peak of 7% in mid-2022, core inflation has been fluctuating between 2.6% and 2.8% since February. Notably, price hikes have remained elevated in services such as apartment rents, restaurant meals, and car and home insurance.
Despite concerns about a potential economic slowdown, the report highlighted that Americans' incomes and spending remained robust. Incomes grew by 0.6% from September to October, surpassing economists' expectations, while consumer spending increased by a solid 0.4% last month.
However, the combination of solid economic growth and persistent inflation may lead Federal Reserve officials to reconsider their plans for interest rate cuts. While a quarter-point rate cut in December is anticipated, further reductions might be delayed as the Fed assesses the impact of this year's cuts.
President-elect Donald Trump's proposed policies, including tax cuts and regulatory reforms, could potentially boost economic growth but also pose risks of overheating and increased inflation. Additionally, the threat of imposing widespread tariffs could further drive up prices.
Initially planning for four rate cuts next year, the Fed's current stance aligns more with market expectations of only two reductions. The evolving economic landscape and policy decisions will likely shape the Fed's future actions in response to inflation and growth dynamics.
