Inflation ticks up, but December Fed cut hope remains

Consumer prices rose by 2.6% in October compared to the previous year, according to the Labor Department, and are slightly up from September’s 2.4% increase.

Core inflation, which excludes food and energy costs, rose by 3.3%, aligning with economists’ expectations. The data suggests that although inflation has cooled from its highs, it remains uneven.

Though inflation rose 0.2% last month, investors believe the data will keep the Federal Reserve on track to deliver another rate cut in December.

Why inflation data affect Fed rates?
The Federal Reserve uses the data to decide whether to raise or cut rates. If inflation is high, the Fed may raise rates to make borrowing more expensive, which can help slow down spending. 

When inflation cools, the Fed might lower rates to encourage borrowing and spending, boosting the economy.

How it affects you?
When the Fed cuts rates, borrowing money becomes cheaper. Lower rates reduce costs for mortgages, car loans and credit cards, making it cheaper for consumers to borrow and spend.

Mortgages: Homebuyers will see reduced mortgage rates, which means smaller monthly payments. It also gives buyers higher purchasing power.

With more buyers, homeowners can see a boost in home prices, per basic demand and supply principle. Homeowners will also have an opportunity to refinance, which will help them with their long-term savings.

Credit card: For individuals with credit card debt, a rate cut can ease the burden by reducing the interest on these debts. This can help consumers manage their debt more effectively and increase their disposable income.

Potential for Job Growth: As businesses invest and expand due to lower borrowing costs, they may need to hire more workers, leading to increased employment opportunities and a stronger labor market.

What drove the price increase?
While energy prices held steady, higher costs for used cars (up 2.7%) and airline tickets (up 3.2%) were the main drivers of the price increase. Even though gasoline prices fell, rising electricity and natural gas costs kept overall energy prices flat. 

Fed Chair Jerome Powell acknowledges these inflationary “bumps” but remains hopeful about a continued decline.

The central bank aims for a “neutral” interest rate, balancing growth without sparking further inflation. Economists remain cautious about future rate adjustments amid ongoing economic uncertainty.