United States: Progress on Inflation Temporarily Stalled

October’s CPI data were close to consensus expectations, but that doesn’t make them any less disappointing. This is the first time inflation has gone up since March. All the same, we can still expect inflation to begin cooling again in the months ahead.

Energy prices didn’t drop in October, as they had over the last two months. They stayed flat instead: while gas and fuel oil prices kept falling, that decline was offset by higher electricity and natural gas prices. However, energy prices have decreased 4.9% over the last year and continue to pull total inflation down. After spiking in September, the month−over−month change in food prices slowed in October.

Once again, core inflation is driving prices upward, and we’re getting the impression that progress on this front has stalled. The three-month annualized change in the index for all items less food and energy climbed to 3.6% in October—back in July, it was just 1.6%. Core goods prices were basically unchanged in October, ticking up just 0.046%, after rising 0.2% in September. This is in sharp contrast to the downward trend we saw earlier in the year. Used car prices contributed to this reversal by jumping 2.7%, their biggest increase since May 2023.

Earlier this year, decreases in core goods prices helped to offset rising service prices (excluding energy). This was clearly not the case in October. Fortunately, service prices grew more modestly over the month. Its 0.3% monthly gain was the smallest since July, even though shelter prices accelerated (+0.4% in October versus +0.3% in September). Improvements largely came from core services excluding shelter, which in fact went down from 0.4% to 0.3%. But if we look at the broader trend for the last few months, we can see that service prices have accelerated across the board. The three-month annualized change for shelter is 4.6%, while the three-month annualized change for services excluding shelter has gone from just 0.5% in July to 4.3% in October.

The fight against inflation is hardly over in the United States. The service industry is still generating price pressure. The strong showing by the ISM Services index over the last few months reflects the industry’s growth. Wage gains are still quite robust in the United States, even though the decrease in job openings should eventually cause them to slow. And of course, the situation may change during the upcoming second Trump term. His proposed policies, which include steep tariffs and a crackdown on immigration, could eventually drive prices higher. This could make things more difficult for Federal Reserve (Fed) officials.

Inflation is a bit stickier than expected, but it probably won’t stop the Fed from moving ahead with another 25−basis−point cut to its key rates in December. November’s inflation numbers will also help inform its decision.