Federal Reserve FED

A rising CPI may signal an earlier Fed pause.

The October Consumer Price Index (CPI) Report showed hints of easing U.S. inflation. Food and energy costs climbed 0.4% and 0.3%, respectively. The year-over-year inflation rate fell to 7.7%.

This is just one month of pricing statistics, but it suggests U.S. inflation may be reducing as prices decline monthly in absolute terms. Still, inflation isn’t near the Fed’s 2% target.

Falling prices

Used automobiles, clothes, and medical services are increasingly cheaper. Some energy-related costs reduced, but they’re variable. Some household furniture, appliances, and food goods reduced in price (discussed below). Falling prices can counteract rising costs and reduce inflation. Before, prices rose together.

Food and housing costs

Housing and food are major CPI factors. Rising housing expenses. November’s data showed the fastest monthly growth since November 1990.

This contradicts the U.S. housing market’s weakness. The way the CPI series is calculated makes it a lagging indication of recent housing values.

The Fed may be less worried about rising home costs because the trend is projected to reverse in the coming months. If it does, inflation may fall.


Food costs might fall. Rising food prices hurt low-income people disproportionately. CPI includes food prices. Food costs have jumped 11% in a year. In November, the rise was 0.6% month-over-month, or 7.4% year.

Food costs are still growing, but maybe they’re slowing. Protein, eggs, cereal, and drink prices are increasing. Fresh fruits, veggies, and milk are now cheaper, a wonderful improvement.

Inflation remains high and above the Fed’s aim. If today’s report patterns hold, we’ll see more prices dropping in absolute terms, balancing those still rising.

Given their weight in the CPI, housing expenses also drive up prices. Current housing downturn should eventually translate to the CPI series in the coming months.

Fed response

We’re not out of the woods yet, but this is the kind of data the Fed wanted, especially given nowcasts projected inflation would be higher.

We’ve seen low monthly readings previously that didn’t endure, as in April of this year. Inflation is easing, though. The next problem is inflation. Even November’s data suggests 5% annualised inflation, over the Fed’s objective. With the November CPI report, the Fed may have moved forward its plan to cease rate rises in the first half of 2023. If economic data improves, this may set up a lower Fed rate rise in December.