US consumer inflation in October edged higher, driven by an increase in housing costs, according to data released by the government on Wednesday. This uptick poses a challenge to the Federal Reserve's plans to cut interest rates.
The Consumer Price Index (CPI) rose by 2.6% in October compared to a year ago, up from 2.4% in September, the Labor Department reported. This figure was in line with the median forecast of economists surveyed by *Dow Jones* and *The Wall Street Journal*.
The rise in inflation complicates the Federal Reserve's strategy of lowering interest rates, although experts suggest the broader trend of disinflation remains intact. "The fundamentals today remain disinflationary," said Gregory Daco, chief economist at EY. "Consumer prudence, reduced markups, easing wage growth, and strong productivity growth are all factors that support disinflation."
Core inflation, which excludes the more volatile food and energy sectors, held steady at 3.3% year-over-year in October, reflecting the ongoing challenges the Fed faces in its inflation-fighting efforts.
White House National Economic Advisor Lael Brainard emphasized the administration's ongoing efforts to ease costs for families. "This has been a hard-fought recovery, but we are making progress for working families," she said. "We will continue to fight to lower costs for key items like housing and healthcare."
The monthly data showed headline inflation increased by 0.2% in October, while core inflation rose by 0.3%. Both figures were unchanged from the previous month.
Housing costs were the primary contributor to the rise in inflation, accounting for more than half of the monthly increase in the CPI. The housing index jumped 0.4% in October, reflecting continued pressure on housing prices.
The October data slightly complicates the Federal Reserve's outlook, which had recently begun lowering interest rates in response to moderating inflation. While inflation has eased and the labor market shows signs of cooling, economic growth remains strong, supporting the outlook for the US economy.
In response to these mixed economic signals, the Federal Reserve had already lowered interest rates by a quarter-point to a range of 4.50% to 4.75% last week, despite uncertainty surrounding President Trump's re-election bid.
Economists at High Frequency Economics noted that while inflation in October was slightly higher than expected, the numbers were in line with forecasts. "There is no evidence of a crash in prices, which might suggest an economic downturn," they wrote, adding that the October data is unlikely to significantly alter the Fed's trajectory.
Futures markets indicate an 80% chance of another interest rate cut next month, according to CME Group data. However, the economic outlook for 2025 remains uncertain, with many factors depending on the policy decisions made by President-elect Trump once he takes office in January.
Daco from EY predicted that the Fed may face increasing pressure to accelerate rate cuts, but warned that any policy changes would likely be cautious. "If anything, the Fed will err on the side of caution," Daco said, citing potential risks from factors such as deregulation, immigration restrictions, tariffs, and tax cuts, all of which could spur inflationary pressures.
With inflationary risks on the horizon, the Fed's path forward remains uncertain, as it navigates the delicate balance between fostering growth and keeping price increases in check.
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