Inflation in the US increased in line with expectations in October

US inflation rose 0.2% m/m in October, unchanged from the previous month and in line with expectations, while the annualized figure showed that consumer prices increased 2.6% last month from 2.4% in September and met expectations for a 2.6% rise. 

So-called core inflation, which excludes volatile food and energy components, increased 0.3% m/m in October, rising by the same margin for the third consecutive month, while annualized core CPI gained 3.3%, unchanged from September and rise in line with expectations. 

The data signals that inflation’s decline towards target has slowed in the past few months, which implies that the Fed needs to re-evaluate its stance on interest rates and may opt for fewer rate cuts next year.  

Frustration of Americans over inflation, which eased significantly from June 2022 9.1%, but remains above Fed’s 2% target, was one of key reasons which helped Republican Donald Trump to win presidential election,  

Economists expect inflation to rise next year if Trump proceeds quickly with implementing his economic policies, including tax cuts, higher tariffs on imported goods, and mass deportations of undocumented immigrants, which will reduce labor supply and pass higher costs for businesses to consumers.  

Markets widely expect the Fed to cut interest rates again in December, with strong bets for 25 basis points cut to 4.50%-4.75% range though with fading expectations for more aggressive approach by the central bank in 2025, in new political environment after Trump’s election victory and fast implementation of his policies on signals that Republicans, after winning the Congress, may also get control on House of Representatives.