Few signs of relief expected in October inflation data

The nation’s punishing rate of inflation likely simmered into October, giving the Federal Reserve little reason to temper its campaign to rein in price gains by steadily raising interest rates.

The Labor Department is expected to report Thursday that consumer prices rose 8% from 12 months earlier and a strong 0.6% from September to October, according to a survey of economists by data firm FactSet. A separate measure called core inflation, which excludes volatile food and energy costs, is expected to have risen 6.5% last year and 0.5% between September and October.

Like many other countries, the United States is struggling to control inflation, which is straining millions of households and dimming the economy’s outlook as the Fed continues to raise borrowing costs for businesses and consumers. Accelerating inflation was sparked by supply and labor shortages after the pandemic recession, by a burst in consumer spending fueled by massive federal aid, and by food and power cuts after the Russian invasion of Ukraine.

So far this year, the Fed has increased its reference interest rate six times in sizable increments, raising the risk that prohibitively high interest rates (for mortgages, car purchases and other high-cost expenses) will push the world’s largest economy into recession.

Inflation was among the top concerns of many voters in midterm legislative elections that ended Tuesday. His economic anxieties contributed to the loss of Democratic seats in the House of Representatives, even though Republicans failed to make the huge political gains many hoped for.

Even at its current high levels, inflation by some measures has started to decline and could continue to do so in the coming months. Most measures of workers’ wages, for example, show that the solid wage increases of the past 18 months have leveled off and begun to fall. Although workers’ wages are not the main driver of higher prices, it can compound inflationary pressures if companies offset their higher labor costs by charging customers more.

Except for automakers, which are still struggling to acquire the computer chips they need, supply chain disruptions have largely unraveled. Shipping costs have fallen back to pre-pandemic levels. Backing of cargo ships off the Port of Los Angeles and Long Beach has been cleared.

And as declines in new rentals that surfaced in real-time measures from sources like ApartmentList and Zillow begin to be reflected in upcoming government measures, that factor should also reduce inflation.

Although many fear the economy will slide into recession next year, the nation’s job market has remained resilient. Employers have added a healthy average of 407,000 jobs a month, and the unemployment rate is just 3.7%, near a half-century low. Job openings are still at historically high levels.

But the Fed’s rate hikes have inflicted serious damage on the US housing market. The average rate on a 30-year fixed mortgage has more than doubled in the past year, exceeding 7% before falling slightly last week. As a result, housing investment plummeted in the July-September quarter, falling at an annual rate of 26%.

Higher mortgage rates have depressed sales. Home prices are slowing down considerably compared to a year ago and have started to fall on a monthly basis. The cost of a new apartment lease is also going down.

However, because of the way the government calculates housing costs, economists believe house prices may have risen in October and pushed up broader measures of inflation. The government measures the cost of all rentals, including most rentals that are under existing leases. However, the rents requested for new leases are slowly declining.

And economists expect prices to decline for many key goods. Used cars, whose price soared last year as a shortage of computer chips sharply reduced the availability of new cars, are expected to fall from September to October. Used car wholesale costs have been declining steadily, but have yet to be fully reflected in retail prices.