The annual rate of inflation in the US fell more than expected in October, suggesting that the worst of the post-pandemic price surge is behind us, bolstering hopes that the current cycle of interest rate hikes will end soon.

U.S. consumer prices rose 7.7% from a year earlier, down from 8.2% in September and clearly below the consensus forecast of 8.0%. Current price momentum also weakened more than expected. Overall prices rose just 0.4% for the month, down from 0.6% in September, while core prices, which exclude volatile food and energy, rose 0.3% rather than the 0.5% expected.

The core inflation rate has fallen from a peak of 9.1% in June for 4 consecutive months. It is now at its lowest level since January at 7.7%.

The financial market reacted violently to the news. US Federal Reserve Governor Jerome Powell, after the last central bank meeting, let the market expect him to keep the rate higher and longer than expected. The CPI data caused a rapid reassessment of this scenario.

The dollar index fell nearly 1.5% but then recovered to 109.18, down 1.2% for the day. The S&P 500 futures rose 2.9% and the Nasdaq 100 futures rose nearly 3.7%.

“After the November Open Market Committee (FOMC) meeting, the market was set for a final rate of around .2% in June 2023 (longer is higher),” Eric Basmajian, CEO of EPB Research, said on Twitter (NYSE:TWTR). – “After today’s CPI miss, the market has moved to an estimate of 4.93% in March 2023 (lower for shorter periods).

Inflation has fallen because core goods inflation is finally turning sharply negative, says Peterson Institute Research Fellow Jason Furman. Core services inflation has also fallen, having trended markedly higher in recent months. This is partly due to the lagged effect of price adjustments in health insurance, according to Furman, although he also noted that new leases in the housing market seem to be drying up.