Disinflation is back: October's Consumer Price Index shows further progress on inflation, an about-face from September data.

Why it matters: The cooler data is the latest to suggest more subdued, though not falling-off-a-cliff, economic activity.

• That's in contrast to a run of September data that pointed to the economy heating up. It raised concerns that America's inflation problem might stick around longer and require further monetary tightening to quell.

What they're saying: "The inflation fever has broken in the United States," wrote Bill Adams, chief economist for Comerica Bank, in a note.

What's new: October CPI was flat (or, unrounded, up 0.04%) as gasoline prices plunged.

• Core CPI, which excludes food and energy prices, rose 0.2%, a tick cooler than September. That measure has risen at a 3.2% annualized rate — down from the 3.6% in September.
• Particularly promising, services excluding housing and energy costs — closely watched by the Fed for signs of shifts in underlying inflation — rose only 0.2%.

Of note: Shelter costs rose 0.3%, a big slowdown from September's 0.6% jump, largely thanks to a 2.9% drop in hotel and motel prices. It suggests a spike in those prices in September was a fluke.

• Lodging was one of several travel-related categories where prices fell outright. Airfares dropped 0.9%, and car rental prices dropped 1.5%.
• It's just one month, but it could be a sign that the post-pandemic price explosion for everything travel-related may be coming to an end, with supply and demand coming into better balance.

Between the lines: Plenty of risks are ahead, including any possible fallout from current geopolitical conflicts.

• But the numbers offer optimism that inflation is receding to a more tolerable level — without the painful economic consequences that some anticipated.

The bottom line: "Ain't no reason to believe the last inflation mile will be the most difficult," EY-Parthenon economist Gregory Daco wrote.

• "Slower consumer demand, reduced housing rents, lower profit margins, easing wage growth and restrictive monetary policy represent the ideal disinflationary combo heading into 2024."

The reaction from financial markets was fast and the opposite of furious.

State of play: October's inflation figures raise the likelihood that the Fed is done with interest rate increases — and that steady, low-pain disinflation is well underway. That would be good for financial assets across the board.

By the numbers: The two-year Treasury yield — highly sensitive to expectations of Fed policy — was down a whopping 0.2 percentage point, to 4.84% as of 12pm ET.

• That level implies significant Fed interest rate cuts next year, given that the central bank's policy rate is currently just under 5.5%.
• Longer-term yields were also down sharply, which should ease the cost of mortgages and other big-ticket borrowing.
• The prospect of cheaper money was good for risk assets, with the S&P 500 up about 2% this morning.

The surge was even more extreme for interest-sensitive sectors. The Vanguard Real Estate Investment Trust ETF was up nearly 6%, for example.

Between the lines: In recent weeks, a recurring tone from Fed officials has been that they think they're done with rate hikes and want to be done tightening. However, softer data on inflation, the job market and economic activity needs to arrive to make that possible.

• So far this month, those softer numbers have arrived. Another key report is out tomorrow, on October retail sales, which analysts expect to show sales edging down after a blockbuster 0.7% gain in September.