Little sign of relief expected in October US inflation data

WASHINGTON (AP) – The country’s punitive rate of inflation likely continued to smolder in October, giving the Federal Reserve little reason to slacken in its bid to slow inflation through steady interest rate hikes.

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

Like many other countries, the United States is struggling to control inflation, which is squeezing millions of homes and clouding the outlook for the economy as the Fed continues to raise borrowing costs for businesses and consumers. The acceleration in inflation has been prompted by supply and labor shortages following the pandemic recession, a surge in consumer spending fueled by huge federal aid, and the disruption to food and energy following Russia’s invasion of Ukraine.

So far this year, the Fed has raised interest rates six times in sizeable increments, raising the risk that prohibitively high borrowing rates — for mortgages, car purchases and other expensive expenses — will plunge the world’s largest economy into recession.

Inflation was high on the minds of many voters in the congressional elections that ended Tuesday. Their economic fears contributed to the loss of Democratic seats in the House of Representatives, although Republicans failed to make the huge political gains that many expected.

Even at its current elevated levels, inflation has started to ease by some measures and may continue to do so in the coming months. For example, most measures of workers’ wages show that the robust wage increases of the past 18 months have leveled off and have started to fall. While workers’ wages are not a primary driver of higher prices, they can add to inflationary pressures if companies offset their higher labor costs by charging their customers more.

With the exception of automakers, who are still struggling to source the computer chips they need, supply chain disruptions have largely dissipated. Shipping costs have dropped back to pre-pandemic levels. Cargo ships were cleared of traffic jams off the ports of Los Angeles and Long Beach.

And as declines in new rents, revealed in real-time from sources like ApartmentList and Zillow, are beginning to be captured in the government’s forthcoming measures, this factor should ease inflation as well.

Despite many fears that the economy will slide into recession next year, the country’s job market has remained resilient. Employers have added an average of 407,000 new jobs per month and the unemployment rate is just 3.7%, almost a half-century low. The job vacancies are still at a historically high level.

But the Fed’s rate hikes have done serious damage to the US housing market. The average interest rate on a 30-year fixed-rate mortgage has more than doubled over the past year to over 7% before declining slightly last week. As a result, residential investment collapsed in the July-September quarter, falling at a 26% annual rate.

Higher mortgage rates have depressed sales. Home prices are decelerating sharply from a year ago and are beginning to fall on a monthly basis. The rental costs for a new apartment are also reduced.

But because of the way the government calculates housing costs, economists believe house prices may have risen in October, raising broader inflation measures. The government measures the cost of all rents, including most rents that are part of existing leases. However, asking rents for new leases are slowly declining.

And economists expect the prices of many important goods to fall. Used cars, which skyrocketed in price last year as a shortage of computer chips severely reduced new car availability, are likely to have fallen in September-October. The wholesale cost of used cars has been falling steadily, but has yet to be fully reflected in retail prices.

Christopher Rugaber, author of AP Economics, contributed to this report. Little sign of relief expected in October US inflation data

Dais Johnston

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