Inflation remained unchanged in October from the previous month, a hopeful sign that stubbornly high prices are slowing the U.S. economy and may give the Federal Reserve the green light to halt interest rate hikes.

The consumer price index, which measures a broad basket of commonly used goods and services, rose 3.2% from a year earlier, although it was flat for the month, according to seasonally adjusted figures from the Labor Department on Tuesday. Economists surveyed by Dow Jones were looking for values ​​of 0.1% and 3.3%, respectively.

The overall CPI was up 0.4% in September.

Excluding fluctuating food and energy prices, core CPI rose 0.2% and 4%, respectively, compared to the forecast of 0.3% and 4.1%, respectively. The annual reading, at 4.1% in September, was the lowest in two years but was still well above the Federal Reserve’s 2% target.

Markets jumped following the news. The Dow Jones Industrial Average rose nearly 500 points as Treasury yields fell sharply. Traders have also almost completely taken potential Fed rate hikes off the table, according to CME Group data.

“It seems prudent for the Fed to effectively end its tightening cycle while inflation continues to slow. Yields have fallen significantly as the last few investors, unconvinced the Fed is done, are likely to throw in the towel,” said Bryce Doty, portfolio manager at Sit Fixed Income Advisors.

The unchanged reading of the consumer price index (CPI) came as energy prices fell 2.5% for the month, offsetting a 0.3% rise in the food index. It was the slowest monthly pace since July 2022.

Accommodation costs, a key component of the index, rose 0.3% in October, half the rise in September as the year-on-year increase slowed to 6.7%. Within this category, owner equivalent rent, which measures what property owners can charge for rent, rose 0.4%. A subcategory that includes hotel and motel rates fell 2.9%.

“This is a turning point,” Paul McCulley, a former chief economist at Pimco and now an associate professor at Georgetown University, said on CNBC’s “Squawk on the Street.” “We are experiencing a day of rational exuberance as the data clearly shows what we have been waiting for a long time, a crack in the protective component.”

Vehicle costs, which had been a key component of inflation during the surge in 2021-22, fell month-on-month. New car prices fell 0.1%, while used car prices fell 0.8% and were down 7.1% year-on-year.

Airfares, another closely watched factor, fell 0.9% and are at 13.2% annually. Motor vehicle insurance, on the other hand, recorded growth of 1.9%, 19.2% higher than the previous year.

The report comes as markets closely monitor the Fed’s next steps in the fight against persistent inflation that began in March 2022. The central bank ultimately increased its key interest rate elevenfold to a total of 5.25 percentage points.

While markets largely believe the Fed is done tightening monetary policy, recent data has sent conflicting signals.

Nonfarm payrolls rose just 150,000 in October, suggesting the labor market is finally showing signs of responding to the Fed’s efforts to correct an imbalance between supply and demand that is contributing to inflation has.

Labor costs have risen much more slowly over the past year and a half as productivity has increased this year.

Real average hourly wages – adjusted for inflation – rose 0.2% on a monthly basis in October, but were only 0.8% higher than a year ago, a separate Labor Department news release said.

More broadly, gross domestic product rose sharply in the third quarter, rising 4.9% on an annual basis, although most economists expect the growth rate to slow significantly.

However, other indicators show that consumer inflation expectations are still rising, likely due to a rise in gasoline prices and uncertainty caused by the wars in Ukraine and Gaza.

Fed Chairman Jerome Powell added to market fears last week when he said he and his policy colleagues remained unconvinced they had done enough to bring inflation back to an annual rate of 2%. and would not hesitate to raise interest rates if further progress was made. Not done.

“Despite the slowdown, the Fed will likely remain hawkish and continue to warn investors against becoming complacent given the Fed’s determination to reduce inflation to its long-term 2% target,” said Jeffrey Roach, chief economist at LPL Financial .

Even when the Fed is done raising interest rates, there is still more uncertainty about how long it will keep interest rates at their highest level in about 22 years.

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