(Kitco News) – Gold prices are on the move, jumping 1% just after weaker than expected inflation numbers.
On Thursday, the US Labor Department said the long-awaited Consumer Price Index rose 0.4% last month after rising 0.4% in September. Economists were looking for a 0.6% increase.
For the year, inflationary pressures rose 7.7%, well below expectations for a 7.9% rise. In September, annual inflation was 8.2%.
“This was the smallest 12-month increase since the period ending January 2022,” the report said.
The gold market sees a fresh boost as weak inflation data shifts expectations for US monetary policy. December gold futures last traded at $1,730.50 an ounce, up nearly 1% on the day.
Core inflation, which strips out food and energy prices, also showed signs of cooling, rising 0.3 percent from a 0.6 percent rise in September. Economists had expected a 0.5% rise.
For the year, headline inflation rose 6.3%, up from September’s annual increase of 6.6%.
Although inflation appears to be easing, the report notes that consumers are still seeing rising food and energy costs. The Energy Index rose 1.8% last month, with both gasoline and electricity prices rising. However, natural gas prices fell.
Meanwhile, the food index rose by 0.6% last month.
The report said energy prices rose 17.6 percent for the year in October and food prices rose 10.9 percent.
“All of these increases were smaller than for the period ending in September,” the report said.
Although inflation remains persistently high, the decline has a significant impact on interest rate expectations. Economists note that lower inflation will give the Federal Reserve room to slow the pace of aggressive rate hikes.
The CME FedWatch Tool shows markets now have a 73.5% chance the US central bank will raise interest rates by 50 basis points next month. In the face of inflation, data markets were pricing in a 50/50 chance of a more aggressive move.
Paul Ashworth, Chief North America Economist, said that while the Federal Reserve will continue to raise interest rates in the new year, the latest inflation numbers could suggest that the tightening cycle is coming to an end.
“We expect this to signal the start of a much larger deflationary trend that we believe will persuade the Fed to end its tightening cycle early next year, with the policy rate peaking at 4.50% to 4.75% and beginning to cut rates again before the end of 2023,” he said.
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