Inflation rises, increasing pressure on shopping season

WASHINGTON — The rise in consumer prices accelerated last month, the latest sign that the steady decline in inflation over the past two years has come to a halt in recent months.

According to the Federal Reserve’s preferred inflation gauge, consumer prices rose 2.3% in October from a year earlier, the Commerce Department said Wednesday. That’s up from 2.1% in September, although it’s still barely above the Fed’s 2% target.

However, excluding the volatile food and energy categories, so-called “core” prices also rose, climbing 2.8% last month from a year earlier, up from 2.7%. in September. Economists watch underlying prices closely because they generally provide a better idea of ​​where inflation is heading.

Inflation has fallen sharply since peaking at 7% in mid-2022, according to the Fed’s preferred measure. However, annual core inflation has fluctuated between 2.6% and 2.8% since February. Price increases remained high in services, including apartment rents, restaurant meals, and auto and home insurance.

Wednesday’s report also highlights that Americans’ income and spending remain healthy, a key reason why the economy has continued to grow this year despite widespread fears of a slowdown. Incomes rose 0.6% from September to October, faster than economists expected, while consumer spending rose 0.4% last month.

But the public is still feeling the effects of inflation: prices are around 20% higher than in February 2021, just before inflation started to accelerate.

Solid growth and stubborn inflation, however, could prevent Federal Reserve officials from reducing their key interest rate as quickly as they announced at their last meeting in September. Many economists now expect to cut interest rates by a quarter point in December and then delay further cuts while assessing the impact of the cuts they have made this year.

President-elect Donald Trump’s victory could also slow the Fed’s rate cut. His proposals to cut taxes and ease government regulations could spur faster growth, but could also overheat the economy and drive up inflation. And his threats to impose across-the-board tariffs, if carried out, would likely drive up prices.

The Fed had announced it would cut rates four times next year, but financial markets now expect only two reductions.

In a separate report, federal economists said the U.S. economy grew at a healthy 2.8% annually between July and September, thanks to strong consumer spending and a surge in exports.

Consumer spending, which accounts for about 70% of U.S. economic activity, accelerated to an annual pace of 3.5% last quarter, up from 2.8% in the April-June period and the fastest growth rapid since the fourth quarter of 2023. Exports also contributed to growth. growth in the third quarter, increasing at a rate of 7.5%, the most in two years. Still, growth in consumer spending and exports in the third quarter was lower than the Commerce Ministry had initially estimated.

But business investment growth has slowed sharply due to a drop in investment in housing and non-residential buildings such as offices and warehouses. On the other hand, spending on equipment has jumped.

When he takes office next month, President-elect Trump will inherit an economy that appears healthy overall.

Yet Trump has promised an economic overhaul. On Monday, he pledged to impose new import taxes on goods from China, Mexico and Canada. Mainstream economists view these taxes – or tariffs – as inflationary. In effect, they are paid by U.S. importers, who then seek to pass on the higher costs to their customers.

Wednesday’s report was the second in a series of three analyzes of third-quarter GDP. The Commerce Department will release the final report on December 19.