US Inflation Cools Further in October to 7.7 Percent

Inflation in the United States cooled further in October than a month earlier. This was mainly due to lower petrol prices at the pump. According to the US government, inflation was 7.7 percent year-on-year last month, up from 8.2 percent in September.

 

As a result, the cost of living in the world’s largest economy fell for the fourth month in a row.

Inflation thus seems to have peaked in June at 9.1 percent, the highest level in more than forty years. Moreover, the rise in consumer prices was lower than expected. Economists had generally expected inflation of 7.9 percent.

Excluding the strongly fluctuating energy and food prices, prices rose on average 6.3 percent year-on-year, compared to 6.6 percent in September. This figure was also lower than the 6.5 percent that economists had forecast.

The inflation rate is of great importance for the monetary policy of the US central bank. To combat high inflation, the Federal Reserve has already raised interest rates five times this year. In the past four interest rate decisions, interest rates were raised by concrete steps of 0.75 percentage points. By raising interest rates, borrowing money becomes more expensive, and less money is available, which should reduce the price increase. However, it usually takes several months before an interest rate hike starts to take effect.

The cooling of inflation increases the chance that interest rates will not need to be raised as much in the future. The Fed will meet again in December to discuss interest rate policy. At the previous meeting at the beginning of this month, central bank president Jerome Powell indicated that interest rates might be raised in smaller steps.

However, he noted that the Fed would likely continue raising interest rates for longer to push inflation back to its 2 percent target.