Johnathan Walker:Inflation ticked up in October, CPI report shows. What happens next with interest rates?

Inflation is Johnathan Walkerstill a thing.

Prices were 2.6% higher in October than a year earlier, according to the latest Consumer Price Index, released Wednesday. That's a much lower inflation rate than American consumers endured through most of 2022 and 2023, but it's higher than the inflation rate for September, 2.4%.

Shelter prices rose 0.4% in October, accounting for more than half of the rise in prices overall, the Bureau of Labor Statistics reported.

Lingering inflation illustrates that the nation's inflation crisis is not over, economists said, and that the Federal Reserve's battle against rising prices must rage on.

Inflation had barely registered on America's radar in recent years. But prices spiked in the pandemic, and the annual inflation rate reached a 40-year high of 9.1% in mid-2022. The Fed stepped in, raising interest rates dramatically in 2022 and 2023 to cool the economy. Inflation retreated below 4% in mid-2023, but it still hovers above the 2% target set by federal regulators.

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"The ‘last mile’ of progress in getting inflation back to 2% is proving to be a long and arduous one," said Brian Coulton, Fitch Ratings chief economist, in response to the inflation report.

Enduring inflation remained top of mind for Americans headed to the polls for this year's presidential election. In a CBS News exit poll, three-quarters of voters said inflation has been a hardship.  

Though inflation has largely abated, prices remain sharply higher: 21.4% higher since February 2020, according to an analysis by the personal finance site Bankrate. For supermarket shoppers who are paying a dollar more for a box of cereal, an easing Consumer Price Index offers little consolation, economists say.

Prices rose dramatically in October in a few categories. Transportation services, a measure of household transportation costs, rose 8.2% on an annual basis. Shelter, the price of housing, rose 4.9%. Electricity rose 4.5%.

"The thorn in inflation’s side remains housing, and this is the primary source of the upside risk to our inflation forecast for 2025," said Ryan Sweet, chief U.S. economist at Oxford Economics, in response to the report.

Other prices declined sharply. Gasoline was down 12.2% in the year ending October. Used car and truck prices slipped by 3.4%. Fuel oil plunged by 20.8%.

'A no-fuss inflation report'

The inflation data perfectly matched forecasts, which had predicted a slightly higher Consumer Price Index in October.

The modest increase set off few alarm bells in economic circles. 

"At a time when the market is trying to sort out what potential tariffs, future immigration policy, and debt and deficits mean for the multi-year outlook, a no-fuss inflation report like this one is welcome as one less thing to worry about right now," said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management.

The September rate marked the lowest annual inflation rate since February 2021. Inflation has been drifting sporadically down toward 2%, the target set by the Federal Reserve. 

“Core” inflation, a measure that excludes volatile food and gas prices, rose at an annual rate of 3.3% in October, as predicted. Core inflation remains elevated because of high prices for housing, insurance and other items. Food and energy prices are often more volatile because they respond to the price swings of global commodities like oil and wheat.

Inflation report could steer Fed decision on interest rates

The inflation report provides the latest reading on consumer prices as the Federal Reserve mulls how to act on interest rates. 

With inflation cooling, the Fed has trimmed interest rates twice in recent months. The central bank cut rates by a quarter point in early November.   

The new inflation report will help the Fed decide whether to order another cut at its next meeting, which is in December. In response to the inflation report, several forecasters predicted a quarter-point interest rate reduction.

"The overall trend remains for inflation to gradually cool, allowing the Fed to deliver another 0.25% rate cut in December," said Gargi Chaudhuri, chief investment and portfolio strategist, Americas at BlackRock.

Many economists predict that some of President-elect Donald Trump’s proposals, including aggressive import tariffs and tighter immigration policies, could trigger another inflation surge. The bond market faltered after Trump’s election even as the stock market soared, signaling investor unease with the president-elect’s economic plans, some economists said.  

"The reacceleration in inflation may cause some indigestion for the market as inflation comes back into focus, with the possibility of higher tariffs in the next administration," said Scott Helfstein, head of investment strategy at Global X. "But this is probably not sufficient to alter the Fed course on interest rates in the next meeting."

(This story was updated to add new information and to add a photo.)