US inflation drops to 7.7%

Costs for rents increased, but the price of cars, clothes and medical care helped slow the rate of inflation in the US

US supermarket shelf
The rise in the cost of food is slowing
(Image credit: © Spencer Platt/Getty Images)

US inflation slowed in October.

The consumer price index rose 7.7% year on year in October, the smallest annual increase since the start of the year.

The figure is below the 8% forecast by economists and down from 8.2% last month.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

This reading suggests inflation might have peaked, taking pressure off the Federal Reserve, America’s central bank, which has been trying to combat rising prices by hiking interest rates.

Currently, interest rates in the US sit at 4% after a 0.75% hike last week, their highest level since early 2008.

While Federal Reserve chair Jerome Powell has warned that rates will need to rise further to curtail inflation, the slowdown has ignited speculation the Fed will slow the pace of increases in the coming months.

Why did US inflation decrease?

A lower than expected rise in rent and housing costs was the main reason for the slowdown in US inflation last month.

That said, the property market in the US remains hot, so it could take some time before prices come down sustainably.

Car prices, costs for clothes, medical care and airline fares all declined. The price of food has also stopped rising as quickly as it was before and energy prices in the US have been lower than in Europe, as it’s far less reliant on foreign gas and oil.

However petrol prices did increase slightly, and restaurant prices and hotel rates also remain high.

UK inflation figures are due out 16 November, however the latest data from the Office for National Statistics showed today the economy shrank 0.2% as we head towards a recession.

How did the markets react?

Investors welcomed the figures, with share prices rising in the US, Europe and Asia.

The S&P 500 index rose 5.5% after the data was published, and the Nasdaq Composite index closed 7.4% higher.

Hong Kong’s Hang Seng index rose 5.5%, China’s CSI 300 index gained 1.9% and Tokyo’s Topix index 1.8%.

In Europe the Stoxx 600 gained 2.7%, while the FTSE 100 and the FTSE 250 gained 1% and 3.9% respectively.

The dollar fell 2.3%, while sterling jumped over three cents to $1.17.

Nicole García Mérida

Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.