Housing costs remain a major driver of inflation. (iStock)
Inflation rose to 2.6% in October, up slightly from the previous month, according to the Consumer Price Index (CPI). Published by the Bureau of Labor Statistics (BLS).
According to the BLS, October's inflation rate was higher than September's annual rate of 2.4%, and rose 0.2% on a monthly basis. Housing costs were the biggest contributor to the monthly increase in October, accounting for more than half of the monthly increase in the index. Food prices also rose 0.2% in October. Energy prices were flat after falling 1.9% in the previous month. These lower prices contribute to lower overall costs of goods and services, offsetting increases in other parts of the economy.
If the pace of price increases accelerates further, it could affect the pace of interest rate cuts by the U.S. Federal Reserve. Last week, the Federal Reserve announced a long-awaited quarterly rate cut, lowering interest rates to between 4.5% and 4.75%. However, inflation has slowed significantly over the past two years from a peak of 7% to 2.6%. Fed Chairman Jerome Powell said the Fed remains committed to maintaining the strength of the U.S. economy by supporting maximum employment and returning inflation to its 2% target.
“The market has dialed back expectations for further rate cuts and is now pricing in a slightly lower probability of a rate cut, at about 60%,” said Daniel Hale, chief economist at Realtor.com. “The November jobs report, due in early December, is likely to be an important factor in that decision, along with the latest inflation rates.”
Gabe Abshire, CEO of Move Concierge, said moderate inflation at the moment and the Fed's interest rate cuts will likely give consumers more room to spend as the holiday season approaches.
“The average U.S. consumer is still feeling the pinch of inflation, but not as much as last year, when it caused major disruptions to monthly household spending,” Absher said. “As we head into the holiday season, we expect retail sales to remain strong and the winter home buying season to slow.”
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The pace of interest rate cuts may slow
The biggest challenge is likely to be cutting inflation to the 2% target rate, said Jim Baird, chief investment officer at Plante Moran Financial Advisors. Baird said the challenges may be exacerbated by President-elect Donald Trump's administration's trade and fiscal policy developments and the slow pace of decline in home prices and other services. The combination of these factors can result in some fluctuations in inflation.
Although the Fed is unlikely to change its rate-cutting policy, the timing and pace of rate cuts next year could slow. The Fed said in September that it could lower the federal funds rate if the economy progresses as expected. By the end of this year, it will be 4.4%, and then 3.4%. By the end of 2025.
“Amidst the Fed's successive interest rate cuts, there is a view that officials could consider further easing with a more critical eye, especially given the continued positive momentum in gross domestic product (GDP) growth,” Baird said. It's spreading,” he said. “The economy continues to grow at a solid pace, supported by a rebound in consumption, raising questions about whether short-term interest rates can or should be cut as aggressively as the Fed's outlook suggests. There is.”
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Car insurance becomes cheaper
Auto insurance fell 0.1% in October, according to today's CPI report, with annual growth slowing for the sixth consecutive month. This will be welcome news for drivers who have seen their insurance premiums soar over the past two years.
Josh D'Amico, Jerry's vice president of insurance operations, said premiums remain high, but there are signs that the worst is over. D'Amico said claims-related costs, which have been a driving force behind insurers' rate hikes, have stagnated or declined in recent months. Used car prices are down 18% from their peak in early 2022, while auto parts and equipment rose just 2.3% annually in October after being flat for much of 2024.
“Cost pressures related to claims have eased and many insurers have paused rate hikes, while others have reversed some of their recent increases,” D'Amico said. “While the rise in repair costs is a bit of a concern, carriers are happy with vehicle prices and want to sell more insurance.”
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