Inflation cools in October and stocks rally on signs the pain of high prices may ease

Stocks rallied Thursday after a better-than-expected report on inflation showed that the galloping price increases that consumers have had to endure all year are beginning to slow.

Consumer prices in October were 7.7% higher than a year ago, according to the Labor Department. That's a slower pace of inflation than September's 8.2% rate. It's also the smallest year-on-year increase in prices since January.

And the price hikes between September and October were significantly smaller than forecasters had expected.

Excluding volatile food and energy costs, annual inflation was 6.3% in October — down from 6.6% the month before.

Investors cheered the news, with the Dow Jones Industrial Average rising more than 800 points or 2.5% in the first hour of trading.

Housing costs accounted for nearly half the monthly price increase, but rents showed their smallest increase in five months. Food costs rose at the slowest pace in 10 months. Gasoline prices rose 4% in October, but remain well below their peak price in early summer.

"Today's report shows that we are making progress on bringing inflation down," President Biden said in a statement. "It will take time to get inflation back to normal levels – and we could see setbacks along the way – but we will keep at it and help families with the cost of living."

The Federal Reserve has been raising interest rates aggressively in an effort to tamp down demand and bring prices under control. After ordering jumbo rate hikes of 0.75 percentage points at each of its last four meetings, the Fed is widely expected to adopt a smaller increase of 0.5 points when policymakers next meet in December. [Copyright 2022 NPR]