Inflation in the U.S. was muted in October, according to a new Commerce Department Report, due in large part to falling fuel prices.
The Consumer Price Index was unchanged from the month before, following a 0.1% gain reported for September over August. Through October, consumer prices have risen 1.7% over the past 12 months, slightly below the 2% annual target of the U.S. Federal Reserve.
When the volatile food and energy sectors are removed, the October showing reveals a 0.2% gain from September, while over the past 12 months the increase was 1.8%
Gasoline prices fell 4% last month, the fourth consecutive monthly drop, while food prices moderated from big monthly jumps earlier in the year to show just a 0.1% gain.
“As we read in the minutes yesterday, Federal Reserve officials are increasingly concerned inflation will remain below the Fed's longer-term target of 2% for years, with some committee members fearful it could be even longer than that before reaching and maintaining stable prices at the desired level,” said Lindsey Piegza, chief economist at the investment firm Sterne Agee. “This morning's benign inflation report does little to alleviate those fears, with headline inflation still noticeably below the Fed's threshold.”
She said with energy price declines expected to continue into 2015 and sluggish international growth expected to maintain downward pressure on import and input costs, headline inflation is likely to slow further, keeping the Fed firmly situated in their accommodative stance. For instance, this could possibly lead to delays in expected increases next year in borrowing costs.
Good news on home sales
Meantime, a separate report shows existing-home sales rose in October for the second straight month and are now above year-over-year levels for the first time in a year, according to the National Association of Realtors.
Total existing-home sales rose 1.5% to a seasonally adjusted annual rate of 5.26 million in October from an upwardly revised rate of 5.18 million in September. Sales are at their highest annual pace since September 2013 and are now 2.5% above year-over-year levels for the first time since last October.
Lawrence Yun, NAR chief economist, said the housing market this year has been a tale of two halves.
“Sales activity in October reached its highest annual pace of the year as buyers continue to be encouraged by interest rates at lows not seen since last summer, improving levels of inventory and stabilizing price growth,” he said. “Furthermore, the job market has shown continued strength in the past six months. This bodes well for solid demand to close out the year and the likelihood of additional months of year-over-year sales increases.”
Yun said growth in housing supply this year will likely prevent the drastic sales slowdown and coinciding spike in home prices we saw last winter due to low inventory. However, he pointed out more housing starts are needed to increase supply, meet current demand and keep price growth in check.
Single-family home sales increased 1.3% in October from the month before and are now 2.9% above the pace a year ago. Existing condominium and co-op sales increased 3.3% in October from September while the pace is the same from the same time a year ago.
Regionally, October existing-home sales in the Northeast climbed 2.9% in October and are 4.4% above a year ago. In the Midwest, existing-home sales jumped 5.1 % and are 2.5% higher than October 2013 Existing-home sales in the South increased 2.8% in October and are now 5.3% above October 2013 while existing-home sales in the West declined 5.0% and remain 3.4% below the level from a year ago.