In October, the United States experienced a greater decline in the inflation rate than in the previous months. According to the US government, the annual inflation rate last month was 7.7 percent, up from 8.2 percent in September. As a result, costs to consumers have fallen for four consecutive months.
For now, it appears that the peak is behind us. In June, inflation peaked at 9.1 percent, a record high for the past 40 years. The current figure of 7.7 percent is slightly lower than expected by economists, who expected the inflation rate to be 7.9.
Excluding highly volatile 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 less than the 6.5 percent that economists had expected.
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For the Federal Reserve, the US central bank, the rate of inflation is very important in determining whether interest rates need to be adjusted. The Fed has already raised interest rates five times this year, four of them by a record 0.75 percent move. By raising the interest rate, it becomes more expensive to borrow money and less money is available, which reduces the rate increase. However, it usually takes several months to raise the interest rate.
Interest rate steps may be smaller
Cooling inflation increases the likelihood of lower interest rates 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 chief Jerome Powell had already indicated that interest rates could be raised in smaller steps. However, he indicated that the Fed is likely to continue raising interest rates for a longer period of time to bring inflation back to the 2% target.
Investors are reacting enthusiastically to the low inflation numbers. Shortly after the start, the Dow Jones rose 2.4 percent to 33,336 points. The Standard & Poor’s 500 index rose 3.5 percent to 3,880 points, and the Nasdaq benchmark rose 4.9 percent to 10,855 points.
