analysis
Inflation in the USA eased in October. Consumer prices in the world’s largest economy stopped rising quite as quickly. This is also good news for the Federal Reserve.
Price inflation in the USA eased in October. The inflation rate fell to 3.2 percent – from 3.7 percent in September. The Labor Department announced this today in Washington. Economists surveyed by the Reuters news agency had only expected a decline to 3.3 percent.
The so-called core inflation, which does not take into account the particularly volatile prices for food and energy, fell to 4.0 percent after 4.1 percent in the previous month. This was the lowest value since September 2021. In a month-on-month comparison, consumer prices remained stable in October.
Consumer prices in the USA – and many other countries – skyrocketed last year, driven by the aftermath of the corona pandemic and the Russian war of aggression against Ukraine. The US inflation rate reached a 40-year high of 9.1 percent in June 2022. It then gradually declined and was at 3.0 percent last June, but then rose again for two months in a row in July and August.
Far from the peak value now
Like the European Central Bank, the US Federal Reserve (Fed) is aiming for inflation of 2.0 percent as a target. The inflation rate is still a long way from that; However, compared to last year’s level, it has declined significantly.
For the Fed, consumer price data is an important benchmark when determining the course of monetary policy. The central bank recently kept interest rates in the range of 5.25 to 5.50 percent for two meetings in a row, after having previously carried out a rapid series of increases: since March 2022, the central bankers have raised key interest rates eleven times in a row.
The new inflation numbers are welcome news for the Fed. Most recently, the central bank left the key interest rate unchanged in a range between 5.25 and 5.5 percent at two meetings in a row. This is the highest interest rate level in 22 years.
Economists see the end of the interest rate peak coming
“The October inflation data show that the inflation trend continues to point downwards, even if it has stalled somewhat recently,” says VP Bank chief economist Thomas Gitzel, assessing the latest data from the USA. What is now most important is that there is relaxation in the service sector.
According to Gitzel, one of the most important reasons for the increase in prices continues to be rents: “If the increase in rental prices continues to slow down in the coming months, the inflation rate should fall significantly. The Fed has similar expectations according to its projections. The interest rate peak is therefore likely to have been reached. The next one Interest rate moves are going down.”
“Positive surprise”
Thomas Altmann from QC Partners sees the falling US inflation rate as a good sign. “This is the positive surprise that the market has been longing for. For the first time this year, prices are stagnating month-on-month.” The annual rate is still too high. But the downward direction is correct again.
Altmann suspects that the discussion about a further interest rate increase is probably over: “From now on, the discussion will revolve around the timing of the first interest rate cut. However, for those who are overly optimistic, we will probably have this discussion for at least six months. “