Rate Hikes See an End as U.S. October CPI Declines More Than Expected

The worst stage of the post-pandemic rate hikes appears to be over, following reports of a better-than-expected decline in the U.S. annual inflation rates in October. 

The startling results have bolstered the likelihood that the ongoing interest rate hike cycles, which were implemented to fight inflation but are now steadily deteriorating the economy and raising prices, may come to an end soon.

CPI Drops to 9-month Lows

The reports show that from a year earlier, consumer prices have increased by 7.7%, significantly less than the consensus estimate of 8.0%, which went down from its previous 8.2% increase in September. 

Additionally, the pricing dynamic has slowed down more than was predicted. Core prices, which exclude both volatile foods and energy components, went up to a 0.3% mark instead of the 0.5% mark initially anticipated.

Meanwhile, the overall price growth has seen an increase of only 0.4% for the month, significantly down from its 0.6% mark in September.

Furthermore, since reaching a climax of 9.1% in June, the headline inflation rate has decreased for four consecutive months. Its current 7.7% price level is the lowest price drop ever made since early January.

Fed Interest Rate Spikes Would End Soon

At the moment, the financial markets still reel from the news and express their hopes for changes in rate spikes. Previously the Chairman of the U.S. Federal Reserve, Jerome Powell, dissuaded all myths of an end to interest rate increases.  

Powell explained to the financial markets that the U.S central bank had made no changes to maintain or reduce interest rate increases. Furthermore, Powell told the market after the central bank’s latest policy meeting that there will be future rate increases for a more extended period. However, the current CPI statistics have caused a quick reevaluation of that situation.

The dollar index dropped to its most profound level in almost two months, falling to 1.5% down to a 108.78 trading value. Meanwhile, the Nasdaq 100 Futures increased by 4.2%, and the S&P 500 Futures surged by 3.2% in response to renewed expectations of a critical breakthrough in the rate cycle. 

Jason Furman, a Peterson Institute fellow, commented that the reason inflation rates suddenly declined was because core goods inflation rates eventually made a reversal and changed to a significantly negative mark.  Furman also explained that core service inflation decreased as well after trending sharply upward in recent months. He said these results were partly brought on by the delayed impact of health insurance pricing changes and remodifications.

Furman also observed that even when housing accounted for half of the increase in the all-terms index, new rent approvals were losing steam in the housing market.

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