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Stocks surged in their biggest rally in two years on Thursday, after a better-than-expected  inflation report showed that the galloping price increases that consumers have endured all year are beginning to slow.

The Dow Jones Industrial Average rose 1200 points, or more than 3.7 percent, over the course of the day to close at  33,715.37, the highest since the middle of August. The Nasdaq soared more than 7 percent and the S&P 500 more than 5 percent.

Consumer prices in October were 7.7 percent higher than a year ago

, according to the Labor Department. That's a slower pace of inflation than September's 8.2 percent rate. It's also the smallest year-on-year increase in prices since January.

And the price hikes between September and October were significantly smaller than forecasters had expected. 

Wall Street greeted the report as as a sign that the Federal Reserve may ease up on the gas in its current drive to contain inflation.

 in an effort to tamp down demand and bring prices under control. After ordering jumbo rate hikes of 0.75 percentage points at each of its last four meetings, the Fed is widely expected to adopt a smaller increase of 0.5 points when policymakers next meet in December. 

Wall Street analysts said that Thursday's inflation reading will give the central bank good reason to go with a smaller hike.

Excluding volatile food and energy costs, annual inflation was 6.3 percent in October — down from 6.6 percent the month before.

Housing costs accounted for nearly half the monthly price increase, but rents showed their smallest increase in five months. Food costs rose at the slowest pace in 10 months. Gasoline prices rose 4 percent in October, but remain well below their peak price in early summer.

"Today's report shows that we are making progress on bringing inflation down," 

.  "It will take time to get inflation back to normal levels – and we could see setbacks along the way – but we will keep at it and help families with the cost of living."  

Business and Economic News

Scott Horsley

Author

Stocks experienced their biggest rally in two years after a report that inflation is currently running at 7.7 percent.

Stock market surges after inflation report shows the pain of high prices may ease

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