Inflation eased in October as prices rose 7.7% from a year ago

Consumer prices across the U.S. slowed their upward march last month, raising hopes that the fiercest inflation in 40 years may be easing.

The consumer price index increased 7.7% over the 12 months ending in October, the Labor Department said Thursday — the lowest rate of inflation since January and a smaller increase than economists had expected. Core prices, which exclude volatile food and energy costs, rose 6.3%.

Rising prices for shelter, vehicle insurance, new vehicles and personal care were offset by falling prices for airline fares, apparel, used cars and trucks, and medical care.

A separate report released Thursday by Adobe Analytics showed that online prices fell in October for clothing, electronics, toys and sporting goods, but continued to rise for groceries and other essentials.

Like other countries, the U.S. is struggling to control inflation, which is pressuring millions of households and dimming the outlook for the economy as the Federal Reserve keeps raising borrowing costs for businesses and consumers.

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

Fed to tap brakes?

So far this year, the central bank has raised its benchmark interest rate six times in an all-out bid to cool inflation. Although monetary tightening is expect to eventually bring prices to heel, the hikes raise the risk that sharply higher borrowing rates — for mortgages, auto purchases and other high-cost expenses — will tip the world's largest economy into recession.

Stock markets surged on Thursday's news, with investors hoping that signs inflation is starting to moderate would persuade the Fed to slow its pace of interest-rate hikes. The S&P 500 rose 3.2% in early trading, while the Dow gained 3.1% and the tech-heavy Nasdaq Composite shot up 4.3%.

"Overall, this is a positive sign that inflationary pressures are starting to come off the boil, after having surged in the first half of 2022. However, this is only a minor slowdown in year-on-year inflation, and several months of such declines will be necessary before the Fed considers pausing its tightening cycle," Cailin Birch, global economist at the Economist Intelligence Unit, said in a research note.

Indeed, rising prices continue to squeeze consumers, with the cost of staples continuing to surge. 

"As much as the markets may welcome a moderation in the pace of inflation, an increase is an increase and most American households are still having to find more money to fund everyday activities," Neil Saunders, managing director of GlobalData, said in a research note about the latest CPI figures.

A recent survey from GlobalData found large numbers of Americans scrimping to save on costs. Half of respondents said they were driving less to save on gas, while just under half said they were trading down to cheaper grocery brands and 61% said they were buying fewer non-food products, according to the panel.

The Associated Press contributed reporting.