US Inflation Eases More Than Expected In October, Cements Expectations For End Of Interest Rate Hikes

The U.S. inflation rate in October 2023 decelerated to 3.2% year-over-year, down from the 3.7% observed in September and resuming a downward trend following a summer rebound.

The figure showed a reduction in overall inflation pressure and fell more than economists’ expectations, which were set at 3.3%.

Prior to the release of the October Consumer Price Index (CPI) report Tuesday, market probabilities indicated an 86% likelihood of interest rates remaining unchanged in December, with traders factoring in the possibility of as many as three rate cuts next year, starting in June.

Key Highlights From US October CPI Report

• The U.S. annual CPI inflation rate dropped from 3.7% in September to 3.2% in October, according to a Bureau of Labor Statistics report released Tuesday.

• On a monthly basis, the headline CPI index was flat, slowing down from the 0.4% pace in September and declining more than the expected 0.1%.

• The annual core CPI inflation rate, which strips out volatile food and energy costs, ticked down from 4.1% to 4% year-over-year in October.

• On a monthly basis, the core CPI increased by 0.2%, slightly below both the previous month and the expected 0.3%.

Overall, the October CPI report offers a positive development for the Fed’s battle against inflation.

Initial Market Reactions

Following the release, the U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), immediately tumbled 0.6%, extending overnight losses.

The policy-sensitive two-year Treasury yield fell by 15 basis points to 4.88% as traders revised the probability of a rate hike at the Fed’s December meeting.

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