US Inflation Data for October: Rates Slow to 7.7%


US inflation data reveals that the rate of inflation slowed to 7.7% in October, marking its lowest annual level since the beginning of the year.

The Federal Reserve was one of the first central banks to begin its aggressive interest rate hikes in a bid to curb soaring inflation. Over the past four months, the inflation rate in the US has been slowing, and last week the country reported its lowest annual rate since the start of the year.

The rate of inflation for October was 7.7%, falling below 8% forecasts. This also marked the lowest year-on-year rate since January, when inflation sat at 7.5 percent.

The summer months saw more modest interest rate declines. Annual prices increased by 8.2% in the year to September, down from 8.5% in the year to July.

us inflation

Consumer prices for food and shelter are still increasing, but at a slower pace than anticipated. On 10 November, consumer prices rose by 0.4% month-on-month (US Bureau of Labor Statistics). The core inflation rate, which excludes the price of energy and food, fell to 0.3% from 0.6% the month before.

A larger-than-expected dip in inflation is a welcome sign that the cost-of-living crisis has finally peaked. This has helped calm fears of further interest rate hikes and led to a slight uptick in consumer confidence. Moreover, treasury yields fell to a five-week low, which is another promising sign that the Fed could hold off on further interest rate hikes in the near future.

The impact on the stock market

US inflation data for October encouraged a rebound in the stock market as investors leapt into riskier assets. On Thursday 10 November, the S&P 500 index closed 5.5% higher and Nasdaq rose 7.4%, marking the best day for the US stock market since April 2020.

Meanwhile, the dollar slid by almost 3% over Thursday and Friday in its largest two-day decline since March 2009.

The decline in the value of the dollar came alongside a jump in other world currencies. The dollar was 1.7% lower against the Japanese yen, and the euro increased 1.46% to $1.036.

The pound rose to just over $1.16 in its largest one-day increase since 2017. On the London Stock Exchange, the FTSE 100 rose by 1% whilst the FTSE 250 jumped by 3.9%.

Paul Dales, Capital Economics, said: “The US and the UK have a similar inflation problem. So, the news today that US inflation pressures appear to be easing has boosted hopes that UK inflation pressures will ease too.”

What does this mean for the wider economy?

Ultimately, lower interest rates in the US will help more businesses to survive, whilst lower mortgage rates will enable more people to hang onto their homes.

According to Freddie Mac’s latest Primary Mortgage Market Survey, 30-year fixed-rate mortgages dipped below 7% in the first week of November. Rates were at 6.95%, down from 7.08% the previous week.

The US will likely see an influx of foreign investment as global currencies gain strength against the dollar. International investors can now get slightly more for their money when purchasing across the pond.

Overall, the Fed’s interest rate hikes seem to be having their desired effect. Inflation is still well above its 2% target, and only time will tell if US inflation has peaked, but October’s data is a positive sign that rates are finally being brought back under control.

America is home to the world’s largest national economy, and the dollar is the most-used currency in global trade. Therefore, cooling US inflation will not only leave other nations hopeful of following a similar path, but will also have a positive effect on the global economy and help other countries in their struggle against inflation.

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The rate of #USinflation slowed to 7.7% in October, marking its lowest annual level since January. Find out how this may impact the property market and the wider economy. Article by @benoitproperty

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