US Annual Inflation Rises to 2.6 Percent, First Increase Since March

A shopper makes her way through a grocery store in Miami, Fla., on July 12, 2023. Joe Raedle/Getty Images

The U.S. annual inflation rate rose for the first time since March, suggesting that the final mile toward achieving the Federal Reserve’s 2 percent target might be bumpy.

According to the Bureau of Labor Statistics (BLS), the annual inflation rate increased to 2.6 percent in October, up from 2.4 percent in September.

Heading into the October CPI report, economists had expected the annual inflation rate to inch up to 2.6 percent.

Consumer prices also jumped by 0.2 percent for the fourth straight month, matching economists’ expectations.

The core consumer price index (CPI), which strips the volatile energy and food categories, was unchanged as expected at 3.3 percent. Core inflation also swelled 0.3 percent from September to October.

Shelter accounted for half of the inflation increase last month, the BLS said.

The index for shelter advanced 0.4 percent and is up by 4.9 percent from a year ago.

Shelter costs have contributed a sizable share to the core inflation stickiness. Despite many economists and Federal Reserve officials anticipating housing costs to fall, they remain elevated.

The energy index was unchanged at zero percent month over month but is up by 3.8 percent in the 12 months ending in October. Gasoline costs slipped 0.9 percent and are down by more than 12 percent year over year.

Crude oil prices have been highly volatile this year. The U.S. benchmark—West Texas Intermediate (WTI)—has been trending downward after hitting an April peak of $86 on the New York Mercantile Exchange. Though there have been periods of significant gains amid geopolitical tensions, the commodity endured a sharp selloff.

WTI crude is now trading below $69 a barrel. This has also weighed on gasoline prices, which are hovering around $3.08 per gallon, according to the American Automobile Association (AAA).

Based on the October CPI report, the most notable price changes over the past year have been transportation (8.2 percent), shelter (4.9 percent), electricity (4.5 percent), food away from home (3.8 percent), and medical care (3.8 percent).

Looking ahead to next month’s CPI data, the Federal Reserve Bank of Cleveland’s Inflation Nowcasting model anticipates the annual inflation rate coming in at 2.7 percent.

The next key inflation report will be the October producer price index (PPI). Economists expect little change in producer prices.

Market Reaction

Stocks were little changed in pre-market trading following the October CPI data.

U.S. Treasury yields, which have been soaring for the past six weeks, took a breather on Nov. 13. The benchmark 10-year yield fell toward 4.38 percent.

The U.S. dollar index (DXY), a gauge of the buck against a weighted basket of currencies, tumbled below 106. Still, the DXY has surged by 4.5 percent year to date, even as the Federal Reserve cuts interest rates.

While the sticky aspects of inflation show signs of easing, Jeffrey Roach, the chief economist for LPL Financial, thinks the Fed will most likely “pause” in January.

“The strength of some cohorts of the consumer is keeping upward pressure on prices as consumer spending hasn’t slowed yet,” Roach said in a note emailed to The Epoch Times. “Stronger than expected economic growth is likely keeping bond yields elevated.”

Inflation Expectations

The last mile toward the Fed’s 2 percent target may be the hardest as businesses and consumers expect inflation to ease but still remain elevated.

According to the New York Fed’s Survey of Consumer Expectations, the one-year inflation outlook was 2.9 percent, the lowest since October 2020. This was the first monthly drop since May.

The three- and five-year-ahead inflation expectations dipped to 2.5 percent and 2.8 percent, respectively.

Based on the Cleveland Fed’s fourth-quarter Survey of Firms’ Inflation Expectations (SoFIE), CEOs and other top executives anticipate higher inflation in the coming year.

SoFIE data show that the mean CPI inflation forecasts over the next 12 months were 3.8 percent, up from 3.4 percent in the third quarter.

Additionally, the expected average CPI inflation rate over the next five years is 3.6 percent, down from 3.7 percent in the fourth quarter of 2023.

Market watchers have been ringing alarm bells about the potential revival of inflationary pressures, looking to the U.S. dollar’s strength as a possible indicator.

The DXY has increased by 0.8 percent in the past week, lifting its year-to-date gain to about 4.5 percent. Even before the 2024 presidential election results, the DXY had risen by 2 percent in the past month.

“The dollar has been edging higher even before the election as the currency market began to factor in the possibility that inflation could be set to tick higher—or remain ’sticky'—requiring the Fed to hold off declaring victory over its campaign to quell inflation,” Quincy Krosby, chief global strategist for LPL Financial, said in a note emailed to The Epoch Times.

Last week, the central bank cut interest rates for the second straight meeting, lowering the benchmark federal funds rate by another 25 basis points to a range of 4.5 percent to 4.75 percent.

According to the CME FedWatch Tool, another quarter-point rate cut is expected at the December policy meeting.

That said, Fed Chair Jerome Powell says the institution is well-positioned to adjust monetary policy accordingly.

“If the economy remains strong and inflation is not sustainably moving toward 2 percent, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can move more quickly,” Powell said at the November post-meeting press conference.

“Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”

The next two-day Federal Open Market Committee meeting is scheduled for Dec. 17 and 18.