Inflation Cooled To 3.2% in October As Gas Prices Fell

Consumer prices rose less than economists expected in October—In fact, by one important measure, they didn’t rise at all.

The Consumer Price Index stayed completely flat in October from September, as a drop in gas prices canceled out increases for rent, car insurance, and other goods and services, the Bureau of Labor Statistics said Tuesday. That was less than the 0.1% uptick that economists surveyed by Dow Jones Newswires and the Wall Street Journal had expected.

Prices rose 3.2% compared to October 2022, less than the 3.7% annual inflation rate in September, and also less than the 3.3% median forecaster expectation.

The 0% month-over-month change in consumer prices, the smallest since July 2022, shows consumers are getting a break from the punishing price hikes for the necessities of life in recent years.

That could also help convince officials at the Federal Reserve that inflation is on its way down from the 40-year highs of last year, making it so they don't need to raise interest rates again to get it down to the desired annual 2% rate. Stock futures jumped Tuesday morning on the tamer-than-expected report.

Although everyday shoppers may pay close attention to prices for food and gas, policymakers at the Fed trying to predict inflation’s future path look closely at “core” inflation, which excludes those items since they tend to swing up and down from month to month.

The nationwide average for a gallon of unleaded gas, for instance, fell 34 cents during October according to GasBuddy, and was the main reason the overall inflation rate fell. The surge in gas prices earlier in the year fueled stubbornly high Consumer Price Index readings in August and September.

Core inflation was also better than expected, rising 0.2% in October from September, down from 0.3% the month before. A 0.8% drop in prices for used cars, and a 0.1% decline in new vehicle prices helped keep core inflation at a simmer despite a 0.5% monthly increase in rent, the same as in the previous three months.?

"The sharp moderation in both headline and core CPI inflation in October is an important step in the Fed’s goal of returning inflation to its 2% target on a sustainable basis," Scott Anderson, chief U.S. economist at BMO Capital Markets, wrote in a commentary. "But, the heavy reliance on volatile gasoline and energy price declines for much of last month's improvement will still keep the Fed from declaring total victory."