Inflation in the US rose last month, as progress towards stabilizing prices appeared to stall. The Labor Department said consumer prices rose 2.6 percent in the 12 months through October, driven by higher housing and food costs. That was up slightly from 2.4% a month ago. The latest data added to speculation that the US central bank may not cut as much as expected in the coming months. The “FR” Federal Reserve wants to see inflation, the rate of price increases, fall to about 2 percent.
It began cutting interest rates in September, noting a significant improvement from June 2022, when rates were rising at more than 9%.
But the analysts regarding potential economic risks tied to the policies proposed by President-elect Donald Trump. His planned actions include:
- Tax Cuts: These could reduce government revenue and potentially increase the national debt if not offset by spending cuts. The benefits and impacts of tax cuts can vary, with some arguing they stimulate economic growth, while others worry about the long-term fiscal consequences.
- Tariffs: Tariffs are taxes on imports, which can make foreign goods more expensive. While they are intended to protect domestic industries, they can lead to trade wars, higher consumer prices, and disruptions in the global supply chain.
- Migrant Deportations: A stricter stance on immigration, including deportations, could lead to a reduction in the labor force, particularly in industries that rely heavily on migrant workers. This might increase labor costs for businesses and affect sectors like agriculture and construction.
Overall, these policies are seen by some analysts as creating uncertainty and challenges for both businesses and consumers, potentially leading to increased economic pressure.
Josh Jimner, investment strategist at Clearbridge Investments, said that while substantial progress has been made in the fight against high inflation, the last mile is proving more challenging. That the recent data released did not surprise Mr. Jamner, as they matched what was anticipated. As a result, he does not foresee any major shifts or reactions in the market because the data met the expected outcomes, suggesting that investors and analysts had already accounted for these numbers in their market predictions.
Prices rose 0.2 percent from September to October, picking up from the pace of the previous three months. the implications of U.S. inflation data matching expectations. Here’s a breakdown:
- Inflation in line with expectations:
The fact that inflation figures are as anticipated means there are no unexpected or negative surprises for the financial markets, which might have caused instability or sudden market reactions. - Federal Reserve’s challenge:
Lindsay James, an investment strategist, points out that the real challenge (or “quandary”) for the Federal Reserve (the U.S. central bank) is deciding what to do with interest rates now that inflation is behaving as expected.
Essentially, the Federal Reserve must determine whether to keep interest rates steady, raise them, or potentially lower them to maintain economic stability, achieve target inflation, and ensure steady growth without causing a slowdown. This decision is complex because it impacts borrowing costs, spending, and investment, which are all crucial for economic health.
Rising prices have fueled public concern in recent years, helping Trump win this month’s presidential election. how housing costs have influenced U.S. inflation over the past year:
- Housing Costs Increase:
In the last 12 months, the costs related to housing, including rents, have increased by 4.9%, according to the Labor Department. This means that renting and other housing expenses have become more expensive. - Impact on Inflation:
Housing has a significant influence on the U.S. price index, which is a measure of overall inflation. Since housing is a major expense for most households, it has a heavy weighting in the inflation calculations. As a result, the rise in housing costs was a major contributor to the overall inflation experienced in the past year.
In summary, the increase in housing costs was a key driver of inflation because housing makes up a large part of what Americans spend, making it a dominant factor in how inflation is calculated and perceived. Other major contributors include car insurance, up 14 percent from a year ago, as well as medical care and education, according to the report. Petrol prices, which have fallen 12 percent over the past year, are a major exception to the overall rise in the cost of living.
The ongoing inflation concerns in the U.S., particularly driven by rising housing and food costs. Inflation for the year through October stands at 4.9%, slightly higher than the previous month’s 2.4%, prompting speculation that the Federal Reserve may not lower interest rates as much as anticipated. The Fed is still aiming to reduce inflation to around 2%, and while progress has been made since 2022, the final steps are proving challenging.
Also explores potential risks tied to policy proposals from President-elect Donald Trump, including tax cuts, tariffs, and migrant deportations. These actions could have mixed effects, with concerns over increased economic pressure on businesses and consumers. The impact of such policies, particularly in areas like trade and labor, could create further economic uncertainty.
Analysts like Josh Jimner believe that while the latest inflation data matched expectations and didn’t cause major market shifts, the Federal Reserve faces a tough decision on interest rates to balance inflation and economic growth. Housing costs remain a significant contributor to inflation, with a 4.9% increase in the past year, making it a major factor in the rising cost of living. Other contributors include car insurance, medical care, and education, while falling petrol prices provide a rare exception to the upward trend. These complex economic dynamics present ongoing challenges for policymakers and the broader economy.
