WASHINGTON (Reuters) – U.S. consumer prices rose as expected in October, and progress toward low inflation has slowed since mid-year, which could result in fewer Federal Reserve interest rate cuts next year.
The consumer price index rose 0.2% for the fourth straight month, the Labor Department’s Bureau of Labor Statistics said Wednesday. In the 12 months to October, the CPI rose 2.6%, following a 2.4% rise in September.
Economists polled by Reuters had forecast the CPI to rise 0.2% year-on-year and rise 2.6%.
The increase in annual inflation also reflects last year’s low value, which has disappeared from the calculation.
Frustration with inflation helped Republican Donald Trump to victory in last week’s presidential election, defeating Democratic Party nominee and Vice President Kamala Harris.
However, economists predict higher inflation next year if Trump continues with his economic policies, including tax cuts and higher tariffs on imported goods. He has also promised mass deportations of undocumented immigrants, which economists say will shrink the labor supply, raising costs for businesses that are then passed on to consumers.
Although the US central bank is expected to cut interest rates again in December, economists see the scope for further cuts next year as limited. US Treasury yields have soared as investors expect the president-elect’s policies to continue unchecked, with Republicans controlling the US Senate and poised to capture the House of Representatives.
The annual increase in inflation has slowed significantly from a peak of 9.1% in June 2022, but remains above the Fed’s 2% target. The central bank last week cut its key daily interest rate by 25 basis points to a range of 4.50%-4.75%.
The Fed launched its policy easing cycle with an unusually large rate cut of half a percentage point in September, the first cut in borrowing costs since 2020. In 2022 and 2023, it raised rates by 525 basis points to curb inflation.
Excluding volatile food and energy components, the CPI rose 0.3% in October, rising by the same margin for the third month in a row. In the twelve months to October, the so-called core CPI rose by 3.3%. That followed similar progress in September.
Early Wednesday, financial markets saw a roughly 58.7% probability of a 25 basis point rate cut during the Fed’s Dec. 17-18 policy meeting, according to CME Group’s FedWatch Tool. The probability that interest rates would remain unchanged was approximately 41.3%.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
