Consumer Prices Rose Last Month at the Slowest Annual Rate Since January

Consumer prices rose last month at the slowest annual pace since January, suggesting that the Federal Reserve is having some success in its campaign to slow inflation by hiking interest rates.

Headline prices rose 7.7% from the previous year, decelerating from an 8.2% annual growth rate in September, the Bureau of Labor Statistics (BLS) reported in its latest update to the Consumer Price Index (CPI). Economists had projected an 8.0% rate of increase. On a monthly basis, prices rose 0.4% in October, below expectations for a 0.6% gain.

Core inflation, which excludes more volatile food and energy prices, rose 6.3% year-over-year, down from a 6.6% increase over the 12 months ending September. On a monthly basis, core prices rose 0.3%, compared with a 0.6% gain in September.

Price Gains by Category

Rising shelter costs accounted for the largest contribution to October's price gains, rising 0.8% from a month prior. Within the category, transportation services costs recorded the largest annual price gain, up 15.2% year-over-year.

Food prices increased, albeit at a marginally slower pace. They were up 10.9% from a year earlier, or 0.6% more in October compared with a 0.8% gain in September. Prices for food at home, a category that includes groceries and other consumer staples, rose 12.4% year-over-year, or 0.4% from September. Prices for food away from home—a category that includes restaurants, bars, and other dining establishments, rose at an 8.6% annual rate, or 0.9% from a month earlier, matching the September increase.

Energy prices recorded their first monthly increase since June, as the price of crude oil and other energy commodities rebounded from September lows. Year-over-year, the energy index was up 17.6%, with fuel oil recording the largest annual increase at 68.5%. The index rose 1.8% in October after declining 2.1% in September.

Implications for Fed Policy

The Federal Reserve has aggressively tightened monetary policy this year to combat rising inflation, and could interpret the latest CPI figures as proof that rate hikes are slowing inflation. The Fed is expected to raise rates by a further 50 basis points (bps) at the December policy meeting of the FOMC, with a projected year-end federal funds rate of between 4.25% and 4.5%.