US inflation rose to 2.6% in October

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US inflation rose to 2.6 per cent in October, as the Federal Reserve debates how quickly to lower interest rates.

Wednesday’s figure from the Bureau of Labor Statistics was in line with economists’ expectations of a 2.6 per cent rise and above September’s 2.4 per cent pace.

Once volatile food and energy prices were stripped out, “core” CPI held steady at 3.3 per cent on an annual basis.

The inflation data will be closely watched by the US central bank, which has already lowered its benchmark rate by 0.75 percentage points over two successive meetings to a new target range of 4.5-4.75 per cent.

Treasury yields fell following the data release as investors bet that the Fed is now more likely to cut interest rates next month. Futures markets imply a roughly 75 per cent probability of a quarter-point cut in December, up from 60 per cent before the inflation figures.

Two-year Treasury yields, which track interest rate expectations, fell 0.08 percentage points to 4.26 per cent.

Stock futures made small gains. Contracts tracking the S&P 500 added 0.2 per cent, reversing an earlier move, while those tracking the tech-heavy Nasdaq 100 rose 0.1 per cent.

A gauge of the dollar traded 0.2 per cent lower against a basket of six other currencies.

Fed officials are trying to reach a “neutral” rate setting that keeps inflation in check without squashing demand, in a bid to pull off a so-called soft landing that would avoid a recession.

Most metrics suggest the US economy is in good health, with recent retail sales figures suggesting consumers are still spending. The labour market is also robust, despite last month’s poor jobs report, which was dragged down by hurricanes and the strike at Boeing.

Inflation has fallen significantly from its peak of more than 9 per cent in 2022, but progress has slowed in recent months.

On a monthly basis, prices rose 0.3 per cent — in line with the past three reports. Half of that increase stemmed from a 0.4 per cent increase in the index tracking housing-related costs, the BLS said on Wednesday.

Energy prices were flat for the month, following a 1.9 per cent decline in September. Further increases in airline fares were offset by declines in prices for clothes and furniture.

At a press conference last week, following the Fed’s latest quarter-point rate cut, chair Jay Powell said he expected inflation to “come down on a bumpy path over the next couple of years” before settling near the central bank’s 2 per cent target.

That path could become even more volatile following Donald Trump’s victory in the US presidential election. The president-elect has pledged to enact sweeping tariffs, deport immigrants en masse and lower taxes.

Economists warn that these policies could stoke price pressures while breeding uncertainty that could hamper growth.

Powell last week said the Fed does not “speculate” about the timing or the substance of any future policy changes. As such, he said, “in the near term, the election will have no effects on our policy decisions”.