Lower petrol prices offset rent increases, lowering US inflation

Last month’s decline in petrol prices contributed to the lowest rate of inflation in the United States since July.

As of October, prices rose 3.2% annually, according to data from the Labour Department.

This was reduced from 3.7% the previous month.

Although housing expenses continued to increase, analysts anticipated a more moderate impact on overall price pressures, implying that the nation’s battle against inflation might be nearing its conclusion.

The price index, a metric utilised to assess the cost of a selection of goods, remained unaltered from September to October. Excluding food and energy prices, which are prone to volatility and obscure broader trends, prices increased by 0.2%, marking a decrease from the previous month.

As investors wagered that the US central bank will not need to do more to cool the economy and curb inflation, stocks surged in the wake of the report.

Investor Response and Central Bank

Since last year, the Federal Reserve has implemented significant interest rate hikes to contain the unprecedented acceleration of price growth observed for decades.

The moderate price increases, according to analysts, reduce the likelihood that the US central bank will increase borrowing costs once more.

“The Federal Reserve will remain on the sidelines as long as inflation remains moderate,” said Greg McBride, chief financial analyst at Bankrate.com.

Since last year, petrol prices have decreased by more than 5 percent and fell precipitously from September to October, as reported by the Labour Department. Additionally, both new and used automobiles and vehicles became less expensive.

However, Mr. McBride acknowledged that there are still areas of concern, highlighting housing costs in particular as they have increased by 6.7% in the past year.

Last month, housing expenses comprised over 70% of the total inflation rate, as reported by the Labour Department.

Concerns About Housing Costs

He stated that the deceleration in inflation provides little solace to households still grappling with the cumulative impact of escalating prices, indicating that household budgets are under genuine duress. The consumer price index has risen by over 18% over the last three years.

In contrast to the United Kingdom, housing costs dominate inflation calculations in the United States. In addition to hotel and rent rates, the price index monitors the cost of household insurance.

The sale prices of homes are excluded. A hypothetical figure known as “owners’ equivalent rent” is also incorporated into the index to determine how much householders would be required to pay to rent a comparable dwelling.

Components of Inflation Calculation

Analysts have been forecasting for months that housing expenses would begin to decline, noting that official inflation data, measuring household expenditures, lags behind the market due to the tendency of leases to lock in rates.

As private sector metrics centred on newly signed leases indicate that rents stabilise or even decline, a surge in newly constructed apartments initiated in response to a significant surge in rents during the pandemic has become accessible.

Analysts have reported that the price index has been reflecting the market change for a lengthier period than anticipated. However, indications suggest that this is currently transpiring, as the annual growth rate of shelter expenses has decelerated significantly since April.

Orphe Divounguy, senior economist at Zillow, remarked, “Everything is proceeding in the right way.” He further predicted that rents would increase at the 3-5% annual rate that was customary prior to the pandemic. The rental market has stabilised to some degree.

However, construction has recently slowed due to increased borrowing costs.

Wells Fargo economist Sarah House concurred that housing price increases would likely decelerate in the coming months but cautioned, “The consistent rate of primary rent inflation suggests that the deceleration may not be as pronounced as private sector indicators have suggested.”

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