U.S. consumer inflation came in with a modest reading once again in October, with the headline rate up 0.3%, and 0.2% on the core rate.

“Any inflation alarm bells still ringing after last week’s spirited rise in the PPI were quieted by this morning’s CPI,” comments CIBC World Markets. “CPI inflation is likely to average 1.6% this year rising to a still well-contained 2% pace in 2003. A tepid recovery means that the economy is in no danger of hitting its capacity stops any time soon, constraining pricing power. Productivity, moreover, has risen 5.3% over the last year, the best showing since 1971. Favorable trends on that front are also helping to keep inflation at bay.”

RBC Financial Group says that much of the headline increase was due to a 1.9% surge in energy prices — the fourth month in a row of strong energy price increases. “With muted core inflation driven by excess capacity conditions in the U.S. economy, the U.S. Federal Reserve continues to have little reason to worry about price inflation and can remain focused on downside risks to growth. This report reinforces our view that the U.S. Federal Reserve will stay on the sidelines with no interest rate hikes until about the mid-point of next year,” says RBC.

“Signs that inflation remains under control gives the Fed leeway to ease if the economy’s performance slackens from here, as we expect. With unemployment ticking up over 6% as GDP growth tracks below the 2% mark in the next two quarters, the Fed is likely to cut the funds rate by a further 25 bps early next year,” calls CIBC.

BMO Nesbitt Burns says that it believes that inflation has hit bottom in the U.S., “with this month’s 2.2% y/y rise in core CPI close to as good as we will see. Special factors this month were mostly on the down side, offset by higher energy costs. Today’s CPI report along with last week’s PPI should keep deflation bears quiet, although underlying inflation pressures remain very mild.” It offers no call on rates though.