Consumer prices dropped 0.5% in October for the second month in a row, led by falling prices for gasoline and cars, the Labor Department reported Thursday (Nov. 16).
According to CBS MarketWatch, core inflation, which excludes food and energy prices, rose 0.1%, the smallest increase in eight months.
The figures provide hope that inflationary pressures are moderating, and could give the Federal Reserve room to cut interest rates if the economy slows too much over the next few quarters.
The report will be “warmly greeted” at the Fed, said Kenneth Beauchemin, an economist for Global Insight. It increases the likelihood of rate cuts next year, he said.
The numbers were much better than expected. Economists were forecasting the CPI to fall 0.2% and the core rate to rise 0.2%, according to a survey conducted by MarketWatch.
The core CPI has now risen 2.7% in the past year, down from a five-year high of 2.9% a month ago. In the past three months, the core CPI has risen at a 2.3% pace, near the top of the Federal Reserve’s comfort zone.
Fed officials have said they view inflation as the greatest risk to a stable economy, and judge that inflation is too high. They do expect, however, that slower growth should reduce inflation over time.
The CPI is up 1.3% in the past year, the slowest inflation since June 2002. The year-over-year comparisons are flattered by the spike in energy prices in the fall of 2005 after the hurricanes. In the past three months, the CPI has fallen at a 2.9% annual rate, as gasoline prices have plunged.