Stocks rise as data shows inflation falling

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WASHINGTON — Price increases moderated in the United States last month in the latest sign that inflationary pressures that have gripped the country may ease as the economy slows and consumers become more cautious.

Consumer inflation rose to 7.7% in October from a year earlier and 0.4% from September, the government announced on Thursday. The year-over-year increase, a slowdown from 8.2% in September, was the smallest increase since January. A separate gauge called core inflation, which excludes volatile food and energy, has risen 6.3% over the past 12 months and 0.3% since September.

The numbers were all lower than economists had expected.

Buoyed by the news, stocks started the day galloping to their best day in years on Thursday as euphoria sweeps Wall Street and financial markets around the world after a report showed that inflation in the United States United had slowed last month even more than expected.

The S&P 500 was up 3.3% in early trading, as the data immediately sent prices in the markets for everything from metals to European stocks. Even bitcoin has recovered some of its steep drop of the previous days caused by the crypto industry’s latest crisis of confidence.

The Dow Jones Industrial Average rose 713 points, or 2.2%, to 33,227 as of 9:43 a.m. EST, while the Nasdaq composite climbed 4.4%.

Used car prices, which fell for a fourth consecutive month, contributed to the slowdown in inflation from September to October. Prices for clothing and medical care also fell. The rise in food prices has slowed. By contrast, energy prices rebounded in October after falling in August and September.

Even with last month’s attempt to ease inflation, the Federal Reserve is widely expected to continue raising interest rates in an attempt to stem the persistent rise in prices. But Thursday’s better-than-expected data raised the possibility that the Fed could decide to slow its rate hikes – a prospect that sent stock prices jumping immediately after the government released the figures.

“We expect this to mark the start of a much longer disinflationary trend that we believe will convince the Fed to stop its (hikes) early next year,” said Paul Ashworth, an economics economist. Head of North America at Capital Economics, a consulting firm. “With supply shortages normalizing, deflationary pressure is finally showing.”

Many economists have warned that by continuing to tighten credit, the central bank risks triggering a recession by next year. So far this year, the Fed has hiked its benchmark interest rate six times in large increments, increasing the risk that prohibitive borrowing rates – for mortgages, auto purchases and other costly expenditures – tip the world’s largest economy into recession.

Some economists have suggested that the latest inflation data shows the hikes starting to hit their target, though the Fed needs to see more evidence.

“The data will be good news for the (Fed), finally showing some price reaction” to rate increases, said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “

In the midterm elections that ended on Tuesday, nearly half of voters cited inflation as their top concern, according to VoteCast, an extensive survey of more than 94,000 voters nationwide for the ‘Associated Press by NORC at the University of Chicago. About 8 in 10 people said the economy was in bad shape and a slim majority blamed President Joe Biden’s policies for worsening inflation. Just under half said factors beyond Biden’s control, such as Russia’s invasion of Ukraine, were to blame.

These economic concerns contributed to the Democratic loss of seats in the House of Representatives, although Republicans failed to secure the huge political gains that many had expected. And a sizable portion of voters — 44%, according to VoteCast — said their top concern was the future of democracy, an issue that has been highlighted by Biden and Democratic congressional candidates.

Even before the release of Thursday’s numbers, inflation by some measures had begun to subside and may continue to do so in the months ahead. Most indicators of workers’ wages, for example, show that the strong wage increases of the past 18 months have stabilized and started to decline. Although worker compensation is not the main driver of rising prices, it can add to inflationary pressures if companies compensate for higher labor costs by charging customers more.

With the exception of automakers, which are still struggling to acquire the computer chips they need, supply chain disruptions have largely eased. Shipping costs are back to pre-pandemic levels. Backup cargo ships off the Port of Los Angeles and Long Beach have been cleared.

And as the declines in new rents that have appeared in real-time metrics from sources such as ApartmentList and Zillow are starting to factor into the government’s next measures, this factor should also reduce inflation.

Even though many fear the economy could fall into recession next year, the country’s labor market has remained resilient. Employers have added a healthy average of 407,000 jobs per month, and the unemployment rate is just 3.7%, near a half-century low. Job vacancies are still at historically high levels.

But the Fed’s rate hikes have inflicted severe damage on the US housing market. The average rate on a 30-year fixed mortgage has more than doubled over the past year, topping 7% before falling slightly last week. As a result, housing investment collapsed in the July-September quarter, falling at an annual rate of 26%.

Rising mortgage rates depressed sales. Home prices are slowing sharply from a year ago and have started to decline on a monthly basis. The cost of a new apartment lease is also falling.

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AP Economics Writer Christopher Rugaber contributed to this report.

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