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US consumer inflation eased to 7.7 percent over the past 12 months

A shopper holds a shopping basket with groceries inside a grocery store in San Francisco, California on May 2, 2022.David Paul Morris/Bloomberg

WASHINGTON — Price increases moderated in the United States last month in the latest sign that the inflation pressures that have gripped the nation might be easing as the economy slows and consumers grow more cautious.

Consumer inflation reached 7.7 percent in October from a year earlier and 0.4 percent from September, the Labor Department said Thursday. The year-over-year increase, a slowdown from 8.2 percent in September, was the smallest rise since January. Excluding volatile food and energy prices, “core” inflation rose 6.3 percent in the past 12 months and 0.3 percent from September.

The numbers were all lower than economists had expected.

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From September to October, the prices of clothing, used cars and medical care all fell. Food price increases slowed. By contrast, energy prices rebounded last month after having declined in August and September.

Even with last month’s tentative easing of inflation, the Federal Reserve is widely expected to keep raising interest rates to try to stem persistently high price increases. 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 issued the figures Thursday morning.

Many economists have warned that in continuing to tighten credit, the central bank is likely to cause a recession by next year. So far this year, the Fed has raised its benchmark interest rate six times in sizable increments, heightening the risk that prohibitively high borrowing rates — for mortgages, auto purchases and other high-cost expenses — will tip the world’s largest economy into recession.

Some economists suggested that the latest inflation data shows that the Fed’s hikes are beginning to achieve their goal.

“The data will be welcome news for the (Fed), finally showing some response in prices” to the rate hikes,” said Rubeela Farooqi, chief US economist at High Frequency Economics. "

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Inflation was near the top of many voters’ minds in the midterm congressional elections that ended Tuesday. Their economic anxieties contributed to the loss of Democratic seats in the House of Representatives, though Republicans failed to score the huge political gains that many had expected.

Even before the latest figures, inflation by some measures had begun to ease and could continue to do so in coming months. Most gauges of workers’ wages, for example, show that the robust pay increases of the past 18 months have leveled off and have begun to fall. Though worker pay is not a primary driver of higher prices, it can compound inflationary pressures if companies offset their higher labor costs by charging their customers more.

Except for automakers, which are still struggling to acquire the computer chips they need, supply chain disruptions have largely unsnarled. Shipping costs have dropped back to pre-pandemic levels. The backup of cargo ships off the port of Los Angeles and Long Beach has been cleared.

And as declines in new rents that have emerged in real-time measures from such sources as ApartmentList and Zillow begin to be captured in the government’s forthcoming measures, that factor should also reduce inflation.

Even as many fear that the economy will fall into recession next year, the nation’s job market has remained resilient. Employers have added a healthy average of 407,000 jobs a month, and the unemployment rate is just 3.7 percent, close to a half-century low. Job openings are still at historically high levels.

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

Higher mortgage rates have depressed sales. Home prices are slowing sharply compared with a year ago and have begun to fall on a monthly basis. The cost of a new apartment lease is also declining.

AP Economics Writer Christopher Rugaber contributed to this report.