Consumer prices rose last month at the slowest annual pace since January, suggesting that the Federal Reserve is having some success in its campaign to slow inflation by hiking interest rates.

Headline prices rose 7.7% from the previous year, the Bureau of Labor Statistics (BLS) reported in its latest update to the Consumer Price Index (CPI). Prices rose 0.4% in October from a month earlier, coming in below expectations for a 0.6% gain.

Core inflation, which excludes more volatile food and energy prices, rose 6.3% year-over-year, down from a 6.6% increase over the 12 months ending September. On a monthly basis, core prices rose 0.3% in October, compared with a 0.6% gain in September.

Key Takeaways

  • Consumer price inflation slowed in October, as the Consumer Price Index (CPI) rose 0.4% from a month earlier, or 7.7% year-over-year
  • Core prices, which exclude more volatile food and energy categories, rose 0.3% in October, or 6.3% year-over-year
  • Shelter costs recorded the largest monthly increase of any price category, while food prices continued to rise and the energy index increased for the first time since June
  • A softer-than-expected inflation reading could prompt the Federal Reserve to ease its tightening stance, suggesting that ongoing rate hikes are having an effect in reducing inflation

Price Gains by Category

Shelter costs rose 0.8% from the previous month, while transportation services recorded an annual increase of 15.2%.

Food prices increased, albeit at a marginally slower pace. They were up 10.9% from a year earlier, or 0.6% more in October compared with a 0.8% gain in September. Prices for food at home, a category that includes groceries and other consumer staples, rose 12.4% year-over-year, or 0.4% from September. Prices for food away from home—a category that includes restaurants, bars, and other dining establishments, rose at an 8.6% annual rate, or 0.9% from a month earlier, matching the September increase.

Energy prices recorded their first monthly increase since June, as the price of crude oil and other energy commodities rebounded from September lows. Year-over-year, the energy index was up 17.6%, with fuel oil recording the largest annual increase at 68.5%. The index rose 1.8% in October after declining 2.1% in September.

Implications for Fed Policy

The Federal Reserve has aggressively tightened monetary policy this year to combat rising inflation, and could interpret the latest CPI figures as proof that rate hikes are slowing inflation. The Fed is expected to raise rates by a further 50 basis points (bps) at the December policy meeting of the FOMC, with a projected year-end federal funds rate of between 4.25% and 4.5%.

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