AILSA CHANG, HOST:
Some good news for anyone planning to hit the road next week for Thanksgiving - falling gasoline prices. That's right. Gas prices dropped 5% in October. That helped slow down overall inflation last month. And pump prices have continued to fall during the first two weeks of November as well. For more on all of this and on the larger inflation story, we're joined now by NPR's Scott Horsley. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Ailsa.
CHANG: OK, so why are gas prices lower now?
HORSLEY: We typically see some drop in gas prices this time of year because, with the exception of the holiday weekend, people are not typically driving as much. Crude oil prices have also come down, thanks to weakness in the Chinese economy and easing fears of a wider war in the Middle East. So put that together - there are now 11 states where the average price of gas is under $3 a gallon.
CHANG: Wow.
HORSLEY: AAA's Aixa Diaz says prices nationwide could drop by another dime a gallon between now and Thanksgiving, just in time for the nearly 50 million people who are planning holiday road trips.
AIXA DIAZ: AAA has found that gas prices don't really keep people back from traveling, even when they're higher. They just make adjustments in their budget in other areas. But when gas prices are lower, it's certainly a welcome sight for drivers as they're passing by gas stations.
HORSLEY: And some more good news for travelers - airfares were also down last month, thanks in part to falling jet fuel prices. And the cost of hotel rooms in October dropped by almost 3%.
CHANG: Good news. But how much did that help lower overall inflation, do you think?
HORSLEY: Inflation cooled off considerably in October. Consumer prices last month were up 3.2% from a year ago. That is the smallest annual increase in over two years. Prices were essentially flat between September and October. The sharp drop in gas prices was a big part of that, but we also saw falling prices for things like new and used cars. Rents are still going up, but not as fast as they had been. Economist Kathy Bostjancic says the general slowdown in inflation is a good sign that the Federal Reserve is on track to get inflation back down to its target of 2%.
KATHY BOSTJANCIC: We do think it's still going to continue to be gradual, but this is a good outcome for the Fed Reserve. They would take victory that it didn't take a harsh recession to bring inflation down.
HORSLEY: You know, the Fed tends to focus on so-called core inflation, which strips out food and energy prices that tend to bounce around a lot. Core inflation is considered a better measure of longer-term movements in the economy. By that yardstick, prices last month were up 4% from a year ago. And, again, that's the smallest increase in more than two years.
CHANG: But wait. Is the Fed ready to say that it has won the battle against inflation then?
HORSLEY: No, not yet. The central bank is still on alert for any sign that strong consumer spending or economic growth might rekindle higher inflation. Fed officials also acknowledged that even when they do get inflation all the way back down to 2% - and we're not there yet - that won't necessarily mean prices go back to their pre-pandemic levels. It just means that prices won't be going up as fast. And that's why, even with this drop in inflation, a lot of people are still grumpy. But, Ailsa, you know who is not grumpy?
CHANG: Who?
HORSLEY: Investors who are betting that the Federal Reserve is done raising interest rates. They were already betting that way before today's better-than-expected inflation report, and they're even more confident in it now. That notion that interest rates may have topped out has sparked a rally in the stock market for the last couple of weeks, and that continued today with the Dow Jones Industrial Average soaring almost 500 points.
CHANG: That is NPR's Scott Horsley. Thank you so much, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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