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Economists: Inflation May Have Peaked

David Krechevsky
Nov 10, 2022
inflation

CPI slipped to 7.7% in October, the smallest YOY increase since January.

KEY TAKEAWAYS
  • Over the past 12 months, the all-items index increased 7.7% — slower than the 7.9% expected by economists.
  • Core inflation — rose 6.3% over the past 12 months.
  • The shelter index rose 0.8%, its largest monthly increase since August 1990. 

By any measure annual inflation is still high, but it pulled back more than expected in October, leading some economists to say inflation may have peaked..

The U.S. Bureau of Labor Statistics (BLS) on Thursday reported that the consumer price index rose 0.4% on a seasonally adjusted basis in October from a month earlier, matching the increase in September. 

Over the past 12 months, the all-items index increased 7.7% — slower than the 7.9% expected by economists and the smallest year-over-year increase since January.

The all items less food and energy index — considered the measure of core inflation — rose 6.3% over the past 12 months. The energy index rose 17.6% for the 12 months ending October, while the food index increased 10.9%. Each of these increases were smaller than for the 12-month period ending in September. 

Core inflation rose 0.3% in October from a month earlier, following a 0.6% increase in September. The shelter index, however, rose 0.8%, the largest monthly increase in that index since August 1990. 

Justin Wolfers, an economics professor at the University of Michigan and a senior fellow at the Brookings Institution, called the report “very encouraging” in a series of comments on Twitter.

“There’s a good chance that inflation has peaked, and now is turning down,” he said.

Economist Paul Krugman also had a positive take on the inflation report, tweeting that “a soft landing is looking increasingly plausible.” 

Krugman noted that while the shelter index accounted for more than half of the monthly increase in core inflation, it is “a lagging indicator.” 

There is “overwhelming evidence now that growth in new tenant rental rates has slowed dramatically and maybe even gone negative,” Krugman said. “This will feed into (the) BLS shelter index with a lag. … Good reason to believe underlying inflation coming under control.”

The shelter index was the dominant factor in the monthly increase in the index for all items less food and energy; other components were a mix of increases and declines. Among the indexes that rose in October was the index for motor vehicle insurance, up 1.7% in October after rising 1.6% a month earlier. The index for recreation rose 0.7% over the month, following a 0.1% increase in September. The new vehicles index increased 0.4% in October, and the personal care index rose 0.5%.

In contrast, the index for fruits and vegetables fell 0.9% over the month after increasing 1.6% in September. The index for dairy and related products also declined (-0.1%) in October.

The energy index increased 1.8% in October, after falling in the previous three months. The gasoline index rose 4% over the month, also following three consecutive declines. The electricity index also increased over the month, rising 0.1%. The index for natural gas, however, decreased in October, falling 4.6% after increasing 2.9% in September.

Over the past 12 months, the energy index has risen 17.6%, with the gasoline index increasing 17.5% and the fuel oil index rising 68.5% over that span. The index for electricity rose 14.1% over the past 12 months, while the index for natural gas increased 20%.

In its battle against inflation, for which it has set a goal of achieving a 2% annual rate, the Federal Reserve’s Federal Open Market Committee has raised its benchmark interest rate six times this year. That included a third-consecutive 75-basis-point increase, which was announced following its meeting on Nov. 2.

In a statement after that meeting, Federal Reserve Chairman Jerome Powell said “the committee decided to raise the target range for the federal funds rate to 3.75% to 4%. The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

Powell added, however, that “in determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

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