Oct. data: Inflation cooled more than expected in US

Wall Street has its best day in over two years; Dow soars 1,200 points, Nasdaq by 7.4%

Consumer price index data released Thursday showed that inflation cooled more than expected in October, a hopeful development for American consumers and welcome news for the Federal Reserve and White House after months of stubbornly persistent price increases.

As a result, Wall Street blasted off to soar to its best day in more than two years as exhilaration swept through markets

The S&P 500 surged 5.5%, while the Dow Jones Industrial Average leaped 1,200 points and the Nasdaq composite packed what could be a year’s worth of gains into one day by roaring 7.4% higher.

While price increases are still rapid and painful for many households, they are finally beginning to show signs of turning a corner. The inflation index picked up 7.7% in the year through October, less than the 7.9% analysts had expected and down from 8.2% in the year through September.

After stripping out food and fuel, both of which jump around in price, a “core” inflation index decelerated to 6.3% on an annual basis, down from 6.6% in the prior reading. And core price gains decelerated sharply on a monthly basis. The underlying details of the report were also encouraging: A slowdown in goods inflation that economists had long anticipated finally showed up, with prices for used cars and clothing falling markedly last month. And in services, part of a slowdown came from an expected decline in medical care costs, but some discretionary purchases also became cheaper, with a fall in airfares and sporting event tickets.

The report provides early evidence that the Fed’s campaign to slow rapid inflation may be combining with supply chain healing to ease price pressures. The central bank has lifted interest rates from near zero to above 3% this year as it tries to slow consumer and business demand and give supply a chance to catch up. Thursday’s report suggested that may be happening — which could improve the outlook for what central bankers call a “soft landing,” a situation where price gains slow without a painful recession.

“This morning’s CPI data were a welcome relief,” Lorie Logan, the president of the Federal Reserve Bank of Dallas, said shortly after the report was released. “But there is still a long way to go.”

Inflation is expected to remain rapid through the end of 2022, though there are reasons to hope that it could moderate even more meaningfully in 2023. Rent inflation is expected to slow at some point next year. Health insurance, which has been slightly adding to inflation, is now beginning to slightly subtract from it because of the way it is calculated — that is expected to continue going forward.

“This is not some kind of outlier print,” Omair Sharif, founder of Inflation Insights, wrote in a note following the release.

But other forces could keep inflation elevated. A big question going forward is what will happen to prices for nonhousing services: pet care, child care, health care, manicures, meals out and the like.