Consumer prices were up 3.2% in October from a year earlier, down from 3.7% in September and slightly slower than economists’ expectations. “Core” prices, excluding food and energy, were up 4.0% in October, the smallest 12-month change since the period ending in September 2021.
However, the index for shelter continued to climb in October by 0.3%, offsetting a decline in gasoline prices and resulting in the seasonally adjusted index being unchanged from September.
Even though shelter prices dropped to 0.3% from 0.6% the prior month, they’ve increased 6.7% over the past 12 months, twice as high as the overall inflation rate.
“Shelter inflation has been coming down slowly since the summer, as new residential construction activity ramped up in 2023,” said Lisa Sturtevant, chief economist for Bright MLS. “But permits for new construction are lower, which means that the boom in supply that has brought rents down in some markets will likely slow in 2024, which could put upward pressure on rents again.”
The longer inflation stays elevated, the more customers expect inflation to remain high. “And if consumers reset their expectations for inflation to be at 3 or 3.5% it will be harder and harder for the Fed to bring inflation down,” Sturtevant said.
The inflation data comes on the heels of a cooler October jobs report. In comparison, the CPI rose 3.7% in September and 3.7% in August.
This easing of inflation is good news for investors who were counting on a strong report today to avoid an additional rate hike at the Federal Open Market Committee’s meeting on Dec. 12-13. On Tuesday, traders priced in a nearly 85.7% chance the Fed will hold interest rates steady in December, according to the CME Group’s FedWatch tool.
As of 9 a.m. EST, the 10-year Treasury yield had fallen to 4.49, its lowest level since Sept. 22.
