Inflation watch! It kept fading in October

Now that election season is winding down, back to the actual economy, and the big economic news from late last week.

The Consumer Price Index rose 7.7% for the year ending in October, a much slower pace of increase than the 8% economists had expected and the lowest annual inflation reading since January.

The stock market skyrocketed on the news, with Dow futures surging by more than 800 points on hopes the Fed would dial back its aggressive rate hikes.

And the market kept surging from there on Thursday.

On a monthly basis, prices rose by 0.4%. That’s on par with the previous month’s increase of 0.4%. Economists were anticipating the monthly figure to grow, given energy prices marched upward in October amid a move by OPEC+ to slash oil production and ongoing uncertainty in Russia’s war in Ukraine.

There also appeared to be some gains made in a measurement watched even more closely by the Fed: Core CPI, which excludes the more volatile categories of food and energy, measured 6.3% for the year ended in October, down from the 6.6% increase posted in September.

Month-on-month, core CPI increased 0.3%. It had logged monthly increases of 0.6% in both August and September.

It was that decline in Core CPI inflation that set the market off, as it indicated to Wall Streeters that the leveling in inflation is happening economy-wide, and not just because gas prices had fallen back.

Digging into the CPI report, there are a lot of good signs. 4 of the 5 lowest monthly CPI changes in the last year have happened since year-over-year inflation peaked at over 9% in June.

I also note that food at home had its smallest one-month increase in 2022, at 0.4%. It's still up 12.4% for the last 12 months, which is certainly a strain for a lot of people, but shows signs of the price increases are at least slowing down going forward.

What's even more heartening is that the CPI was moderate even with gasoline going up 4.0% in October (remember those interestingly timed refinery shutdowns and the Saudis cutting back production 1 month before the midterms? I do). That's going to unwind now that gas prices have gone back down in November, which sets up another month of good inflation numbers in the next report.

On the "core" side, there was another month of declines for used cars and trucks (-0.4%), showing that the supply issues that jacked up new and used car prices for much of 2021 and 2022 are going away. Also, we saw clothes prices go down 0.7% in October, and are only up 4.1% in the last year.

There are still places of concern regarding inflation - shelter was up another 0.8%, fuel oil was up 19.8% in October and over 68% for the last 12 months (a worrying sign as Winter is coming), and eggs had an increase of more than 10% in October as avian flu and other complications sprouted up.

But I do think the hysteria Republicans tried to stir up over higher prices in this Fall's campaign aren't matching the reality of recent months in America. Prices are up at a 3% annual rate since June, which tells me that the Fed shouldn't be raising its Fed Funds rate much higher (or any higher) than the 3.83% it's at today. Combined with the 3.7% unemployment rate and still-decent consumer spending, it's not a bad spot to be in as (ugh) the Holiday shopping season begins.