US consumer inflation picks up to 2.6% in October

FILE – A customer shops at a grocery store in Chicago, Sept. 19, 2024. (AP Photo/Nam Y. Huh, File)

Washington, United States — US consumer inflation edged higher last month spurred by an increase in housing costs, according to government data published Wednesday, complicating the US Federal Reserve’s plans to cut interest rates.

The consumer price index (CPI) rose to 2.6 percent in October from a year ago, up from 2.4 percent in September, the Labor Department said in a statement.

This was in line with the median forecast of economists surveyed by Dow Jones Newswires and The Wall Street Journal.

READ: US stocks finish mixed after inflation uptick

While Wednesday’s data release complicates the Fed’s plans to cut interest rates, it remains broadly on track to slow the rate of price increases, EY chief economist Gregory Daco told AFP.

“The truth is that fundamentals today remain disinflationary,” he said. “Consumer prudence, reduced markups, easing wage growth, strong productivity growth, those are all fundamentally disinflationary.”

A measure of inflation that strips out volatile food and energy costs known as “core” inflation was unchanged at 3.3 percent last month from a year earlier, underscoring the ongoing challenges the Fed faces.

“This has been a hard-fought recovery, but we are making progress for working families,” White House National Economic Advisor Lael Brainard said in a statement.

“We will keep fighting to lower costs for families on key items like housing and health care, and against policies that would undermine our progress on bringing inflation down,” added Brainard, who is unlikely to remain in her position once President-elect Donald Trump returns to the White House in January.

Challenge for the Fed

Monthly headline inflation rose by 0.2 percent, while core inflation increased by 0.3 percent. Both figures were the same as a month prior.

The housing index was responsible for more than half of the monthly rise in headline inflation, according to the Labor Department, jumping by 0.4 percent in October.

The October increase puts a slight spanner in the works of the Federal Reserve, which recently began lowering interest rates in response to easing inflation.

At the same time as inflation has cooled, the labor market has shown some signs of cooling while remaining relatively healthy, and growth has remained robust — all good signs for the world’s largest economy.

The US central bank shrugged off the economic uncertainty raised by Trump’s victory in the US presidential race to cut by an additional quarter percentage-point last week to between 4.50 and 4.75 percent.

Despite the small uptick, the October CPI data is unlikely to sway the Fed too much, economists at High Frequency Economics wrote in a note to clients.

“Inflation metrics for October printed pretty much as expected,” they said, adding: “There surely is no evidence of any crash in prices, as one might expect to see in a crashing economy.”

Futures traders expect the Fed to keep going, penciling in a roughly 80 percent chance of another rate cut next month, according to CME Group data.

Next year, the path forward is less clear, with a lot riding on the decisions taken by President-elect Donald Trump when he takes office in January.

“I do think there will be pressure on the Fed to ease monetary policy faster, whether it’s direct or implicit pressure,” Daco from EY told AFP. “But I think if anything, the Fed is likely to err on the side of caution in ’25 because there will be upside risks to inflation.”

These factors, Daco said, include potential deregulation, immigration restrictions, and the likely implementation of tariffs potential tax cuts, all of which could prove inflationary.

“When you combine all of those elements with the Fed that’s trying to find neutral, I think they will err on the side of caution,” he added.