U.S. inflation rate eases to 3.2%, lower than anticipated

Inflation in the United States slowed last month in a sign that the Federal Reserve’s interest rate hikes are continuing to cool the consumer price spikes that have bedevilled consumers for the past two years.

Tuesday’s report from the U.S. Department of Labor showed that lower gas prices helped cool overall inflation, which was unchanged from September to October, down from the 0.4 per cent jump the previous month.

Compared with a year ago, consumer prices rose 3.2 per cent in October, down from 3.7 per cent in September.

Excluding volatile food and energy prices, so-called core prices also weakened unexpectedly. They rose just 0.2 per cent from September to October, slightly below the pace of the previous two months. Economists closely track core prices, which are thought to provide a good sign of inflation’s future path. Measured year over year, core prices rose four per cent in October, down from 4.1 per cent in September.

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The latest price figures arrive as Fed officials, led by chair Jerome Powell, are considering whether their benchmark interest rate is high enough to quell inflation or if they need to impose another rate hike in coming months.

Powell said last week that Fed officials were “not confident” that rates were high enough to tame inflation. The Fed has raised its benchmark interest rate 11 times in the past year and a half, to about 5.4 per cent, the highest level in 22 years.

Canada’s central bank has followed suit with 10 rate hikes of its own, for the same reasons.

The costs of many services, notably rent, travel and health care, are still rising faster than before the pandemic and pose a challenge to both central banks. Services prices typically change more slowly than the cost of goods, because they largely reflect labour costs, which aren’t directly affected by interest rates.

But those rate hikes appear to be working when it comes to bringing down the overall inflation rate. The rate has dropped from a peak of 9.1 per cent in June 2022, the highest level in four decades, to 3.2 per cent last month. That’s within striking distance of the central bank’s two per cent target.