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US inflation rises after two years of cooling

AP – Inflation in the United States (US) ticked up in October, driven by costlier rents, used cars and air fares, a sign that price increases might be levelling off after having slowed in September to their lowest pace since 2021.

Consumer prices rose 2.6 per cent from a year earlier, the Labour Department said, up from 2.4 per cent in September.

It was the first rise in annual inflation in seven months. From September to October, prices edged up 0.2 per cent, the same as the previous month.

Excluding volatile food and energy costs, “core” prices rose 3.3 per cent from a year earlier, just as in September.

From September to October, core prices rose 0.3 per cent for a third straight month. Over the long run, core inflation at that pace would exceed the Federal Reserve’s (Fed) two per cent target.

Most economists, though, think inflation will eventually resume its slowdown. Consumer inflation, which peaked at 9.1 per cent in 2022, has since fallen steadily, though overall prices are still about 20 per cent higher than they were three years ago.

A customer shops at a grocery store in Chicago, United States. PHOTO: AP

The price spike soured Americans on the economy and on the Biden-Harris administration’s economic stewardship and contributed to Vice President Kamala Harris’ loss in last week’s presidential election.

Yet Donald Trump’s victory has raised uncertainty about where inflation might be headed and how the Fed would react if it reaccelerated. Trump has vowed to reduce inflation, mostly by ramping up oil and gas drilling. But mainstream economists have warned that some of his proposals, notably his plan to substantially increase tariffs on imports and pursue mass deportations of migrants, would worsen inflation if fully implemented.

Most of the September-to-October increase in consumer prices reflected a rise in rents and housing costs, a trend that Fed officials expect to fade in the coming months.

As a result, Wednesday’s figures could keep the Fed on track to cut its key rate for a third time in December, as its officials have previously indicated they likely would.

“Inflation is proving to be a little sticky, but not a big issue,” said Chief US economist Ryan Sweet at Oxford Economics, a consulting firm.

“What I think that means for the Fed is that they can still cut in December.”

If it reduces its key rate again in December by an expected quarter-point, Sweet said, the Fed will have cut rates by a full percentage point. He thinks the policymakers will then pause to gauge the effects of their rate cuts on the economy and inflation.

“A pause is coming,” Sweet said. “The path for interest rates next year is a lot murkier.”

Stock prices surged in the wake of Trump’s election victory, mostly on optimism that his proposed tax cuts and deregulation would boost the economy and corporate profits. But bond yields also moved higher, partly reflecting fear that inflation could accelerate.

In addition, the economy is growing faster than many economists had expected earlier this year.

It has expanded at nearly a three-per-cent annual rate over the past six months, with consumers, particularly those with higher incomes, spending freely and fuelling growth.

Gas prices fell 0.9 per cent from September to October, helping to hold down overall inflation.

Prices at the pump have since fallen further on average nationwide, to 3.08 a gallon on Wednesday, according to AAA.

That’s down from USD3.20 a month ago.

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