Inflation continued to plague the U.S. economy in October as the Consumer Price Index, a reliable measure of the cost of everyday goods such as groceries, gas, and rents, rose 0.4 percent for the month and 7.7 percent on an annualized basis, the Labor Department reported Thursday.
The numbers come days after a midterm election in which Republicans focused relentlessly on inflation, blaming the Biden administration and congressional Democrats for pouring government spending on an already hot economy coming out of the Covid pandemic. The messaging didn’t translate into the red wave that were some predicting, as control of both chambers of Congress remains up in the air as of Thursday morning.
Despite international skittishness, the small inflationary increase in October may be a signal that the Federal Reserve’s progressive ratcheting up of interest rates (which they have done six times this year) is achieving its desired result. The 7.7 percent increase is the smallest annualized increase since January, indicating the fed hikes are beginning to have an effect. Inflation reached a 9.1 percent annualized rate in June, a four-decade high.
Economists had predicted an 8 percent annualized increase. The Dow surged 800 points on the better-than-expected news while the NASDAQ shot up 500 points.
Nevertheless, news of continued inflation may keep the Federal Reserve on track to raise interest rate until they can be certain the worst is behind them. Last week, the benchmark federal funds rate was increased by 0.75 percentage points in an attempt to continue the Federal Reserve’s anti-inflationary program.
“I think the story here is that there are many indications of inflation peaking and rolling over – such as supply chains, used cars, maybe wages – but they simply haven’t shown in the CPI report, so the question is: is today the day that all these indicators finally show up?” one chief economist of a Swiss Bank told Reuters.
Economists at the Federal Reserve are stuck in a tricky situation in which low unemployment rates are making their efforts to combat rampant inflation difficult.
“A strong labor market and strong job growth supports strong demand, which allows inflationary pressures to stay elevated…You’ve got more demand chasing goods and services, the supply of which is being impaired at the moment for a number of reasons,” an economist at T. Rowe Price told the Wall Street Journal.
Also caught in the crossfire have been home sales that have continued to lag for eight months now as rising interest rates weighed down homeowners as housing prices have continued to stagnate.