U.S. Consumer Price Index Rises 0.4% in October, Less than Expected

U.S. consumer prices rose less than expected in October, increasing the chances the U.S. Federal Reserve will reduce the size of its future rate hikes after raising rates by 75 basis points for four month’s in a row.

The report from the Labor Department on Thursday also showed a measure of underlying inflation posting a smaller than expected rise. The data followed on the heels of the recent strong employment report, which showed solid job gains in October and a surprise rise in the unemployment rate to 3.7%.

The consumer price index rose 0.4% last month matching September’s increase. Economists polled by Reuters had forecast the CPI would climb 0.6%.

In the 12-months through October, the CPI increased 7.7% after rising 8.2% in September, decelerating for a fourth straight month. The annual CPI peaked at 9.1% in June, which was the biggest advance since November 1981.

Excluding the volatile food and energy components, the Core CPI climbed 0.3% in October, lower than the 0.6% rises in September and August. The so-called core CPI is being largely driven by the higher costs for rental accommodation.

The core CPI jumped 6.3% in the 12 months through October, the most since August 1982, after rising 6.6% in September.

Market Reaction

U.S. Treasury yields declined across the board on Thursday after the October consumer price index report came in weaker than expected. This drove the U.S. Dollar sharply lower.

Dollar-denominated gold rose sharply higher and U.S. stock indexes soared with the Dow up about 600 points.