The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation rose 0.3% in October, which was in line with estimates. The year over year reading declined from 6.3% to 6% and is down from the peak of 7% seen in June. Core PCE, which strips out volatile food and energy prices, rose by 0.2% with the year-over-year change falling from 5.2% to 5%, down from the peak of 5.4% in February.

What’s the bottom line? Inflation is heading in the right direction and there is hope that inflationary pressures will continue to ease. This is because inflation is calculated on a rolling 12-month basis, which means that the total of the past 12 monthly inflation readings will give us the year-over-year rate of inflation. Inflation readings after October of last year are higher comparisons, so if we continue to see lower monthly readings, the annual rate of inflation will continue to move lower.

On a related note, Fed Chair Jerome Powell’s remarks last week sparked a rally in the markets, as he said that smaller hikes to the Fed’s benchmark Fed Funds Rate could start as soon as their December 13-14 meeting. The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

Powell’s less hawkish tone sets up a potential 50 basis point hike at next week’s meeting, which would mark their seventh rate hike of the year, including four consecutive aggressive 75 basis point hikes at their meetings in June, July, September and November.