Inflation, which is constantly tracked by the Federal Reserve, moderated but remained strong in October, presumably reaffirming the Fed’s intention to continue raising interest rates to cool the economy and decrease the rate of price growth.
According to a report released by the U.S. Department of Commerce on Thursday, prices jumped 6% year-over-year in October. This was the weakest year-over-year growth since November 2021, and it was lower than September’s corrected 6.3% gain. Excluding volatile food and energy costs, the so-called core inflation rate for the preceding 12 months was 5%, lower than September’s 5.2%.
From September to October, prices grew 0.3% on a monthly basis. The rise for core prices was 0.2%.
Even after controlling for inflation, the data revealed that consumer spending increased in October, indicating their ongoing willingness to spend despite rising costs. From September to October, spending grew 0.8%, or 0.5% after accounting for price increases. During the same period, income after taxes, adjusted for inflation, increased 0.4%.
From September to October, consumer expenditure grew 0.8%, or 0.5% after adjusting for price increases.
AP
However, many Americans are using their savings to keep up with growing expenses. In October, the savings rate decreased to 2.3%, the lowest level since 2005.
In response to the worst spell of inflation since the early 1980s, the Fed has hiked its benchmark rate six times since March, with each of the most recent four increases being a substantial three-quarters of a point. The central bank hopes to accomplish the challenging challenge of getting inflation down to its yearly target of 2% without triggering a recession.
Inflation has decreased in recent months from the four-decade highs it hit earlier in the year. The majority of experts anticipate that the Fed’s aggressive tightening will further reduce prices.
Paul Ashworth, chief North American economist at Capital Economics, stated in a research note: “We anticipate to see a lot more good news on inflation over the coming months.”
Fed Chair Jerome Powell said in a speech on Wednesday that the central bank might pause its rate rises to a half-point increase at its next meeting in two weeks, a warning that sent financial markets into a frenzy. However, Powell made it plain that policymakers aim to maintain their benchmark rate, which impacts numerous consumer and commercial loans, at a high level for an extended length of time.
The Fed’s string of aggressive rate hikes has significantly increased the cost of borrowing throughout the economy. The housing industry has been hit particularly hard by the doubling of mortgage rates compared to a year ago: sales of previously inhabited properties have declined for nine consecutive months. Many experts anticipate that the United States will enter a recession the following year as the impacts of these higher interest rates take hold.
In the meantime, though, the economy as a whole is shown indications of remarkable resilience. The government projected on Wednesday that the GDP expanded by 2.9% annually from July to September. The labor market, the most significant indicator of economic health, continues to be solid. Employers have added a robust average of 407,000 jobs each month so far this year, and the jobless rate is approaching its lowest point in half a century.
It is thought that the Federal Reserve monitors the personal consumption expenditures price index, which was released on Thursday, even more attentively than the government’s better-known consumer price index. The government said that the CPI jumped 7.7% from a year earlier in October, a decrease from June’s 9.1% year-over-year increase, which was the largest such increase in four decades.
PCE tends to indicate a lower inflation rate than CPI. In part, this is due to the fact that rents, which have skyrocketed, have double the weight in the CPI compared to the PCE.
When inflation spikes, the PCE price index also attempts to account for changes in shopping behavior. Thus, it can detect, for instance, when consumers transfer from expensive national brands to less expensive retail brands.
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