Inflation cooled slightly in October from the punishing levels of recent months, but stiff prices continued to pressure American households even as the Federal Reserve scrambles to bring them lower.

The October reading of the Consumer Price Index — a closely watched measure of the cost of everyday goods and services — showed an increase of 7.7% compared to the same month one year earlier. On a monthly basis, prices spiked 0.4% compared to September, according to the Bureau of Labor Statistics.

The 7.7% figure was the smallest 12-month increase for the Consumer Price Index since January — a sign the Fed’s efforts are having an effect.

Core inflation, which excludes volatile food and energy prices, increased by 6.3% on an annual basis. Prices are still running well above the Fed’s 2% target level.

Declines in the costs of used cars and trucks, medical services, apparel and airline fares contributed to the improved October reading.

Consumers are still facing pressure points in terms of expenses. Food prices rose 10.9% in October year-over-year — a smaller increase than the previous month but still a significant challenge for shoppers.

The shelter index, which represents housing costs, jumped by 6.9% over the last 12 months.

Ahead of the announcement, economists had expected annual inflation to moderate slightly to 7.9% — down from 8.2% in September. On a monthly basis, they predicted prices would rise 0.6% from September to October.

The decline in inflation was seen as welcome development for stocks. Dow futures surged nearly 800 points on the better-than-expected October result, while the Nasdaq was trending nearly 500 points higher and S&P 500 futures rose more than 100 points.

Still, the jump in stocks could be a sign of “yet another triumph of hope over reality,” according to John Lynch, chief investment officer for Comerica Wealth Management.

“Sustained price pressures in housing, wages and energy indicate a prolonged battle against inflation,” Lynch said.

While gas prices have fallen since hitting all-time highs earlier this year, Americans are getting crushed by major hikes in grocery store aisles and while paying their monthly rent bills. The financial pain has altered shopping habits and will be a consideration for those planning to host Thanksgiving dinner in November.

And experts have warned energy prices could spike again as winter approaches, adding to the pressure on households.

The October CPI report is considered a critical bellwether for the Fed as it attempts to address surging inflation without tipping the US economy into a severe recession. Fed policymakers have implemented a series of supercharged interest rate hikes this year — with more expected in the months ahead.

Earlier this month, Fed Chair Jerome Powell signaled the central bank could slow the pace of its rate hikes by as soon as its December meeting. At the same time, he affirmed the Fed was unlikely to pause its policy tightening efforts in the near future.

“We still think there’s a need for ongoing rate increases and we have some ground left to cover here, and cover it we will,” Powell said.

Investors seem unconvinced that the Fed will back off its hawkish stance.

As of Thursday morning, the market was pricing in a 52% probability that the Fed will implement a smaller half-percentage-point interest rate hike and a 48% chance that policymakers will hike by three-quarters of a point for the fifth straight meeting in December.