Inflation was flat in October from the prior month, core CPI lower than expected

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Inflation was flat in October from the previous month, providing a hopeful sign that stubbornly high prices are easing their grip on the U.S. economy.

The consumer price index, which measures a broad basket of commonly used goods and services, increased 3.2% from a year ago despite being unchanged for the month, according to seasonally adjusted numbers from the Labor Department on Tuesday. Economists surveyed by Dow Jones had been looking for respective readings of 0.1% and 3.3%.

Headline CPI had increased 0.4% in September.

Excluding volatile food and energy prices, core CPI increased 0.2% and 4%, against the forecast of 0.3% and 4.1%. The annual level was the lowest in two years.

Markets spiked on the news. Futures tied to the Dow Jones Industrial average were up 300 points as Treasury yields fell sharply. Traders also took any potential interest rate hikes from the Federal Reserve almost completely off the table, according to CME Group data.

The flat reading on headline CPI came as energy prices declined 2.5% for the month, offsetting a 0.3% increase in the food index. Shelter costs, a key component in the index, rose 0.3% in October, half the gain in September as the year-over-year increase eased to 6.7%.

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