Inflation holds grip on US economy in October as prices remain stubbornly high

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Fed has its work cut out in inflation fight, analyst warns

PGIM co-chief investment officer Greg Peters weighs what the future of the economy will look like following the Fed’s sixth rate hike.

Inflation cooled more than expected in October, but consumer prices remained near a multi-decade high, continuing to squeeze millions of U.S. households and small businesses.

The Labor Department said Thursday that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries and rents, rose 0.4% in October from the previous month. Prices climbed 7.7% on an annual basis. 

Those figures were both lower than the 8% headline figure and 0.5% monthly increase forecast by Refinitiv economists, a potentially reassuring sign for the Federal Reserve as it tries to tame runaway inflation with a series of aggressive interest rate hikes. It marked the slowest annual inflation rate since January. 

In another sign that suggests underlying inflationary pressures in the economy are starting to slow, core prices –  which strip out the more volatile measurements of food and energy – climbed 0.3% in October from the previous month, down from 0.6% in September. From the same time last year, core prices jumped 6.3%.

Economists anticipated that core prices would climb 0.5% on a monthly basis and 6.3% from the previous year. 

Stocks rallied on the better-than-expected report, with the Dow Jones Industrial Average climbing more than 700 points. The S&P500 jumped 3.3%, while the Nasdaq Composite surged more than 4.5%.

"Inflation slowing to its lowest annual rate since January is news that both the Fed and investors can get behind," said Mike Loewengart, the head of model portfolio construction at Morgan Stanley, adding: "Remember that even as we see a slowdown, prices remain elevated and have a long way to go before normalizing."

Scorching-hot inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations. 

This is a developing story. Please check back for updates.

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