Hotter-Than-Expected October Inflation Puts Fed on Track for Hike
US consumer prices rose 0.4% in October, beating forecasts and leaving the Federal Reserve poised to raise interest rates again in December.
Prices paid by American consumers rose faster than economists expected in October, adding pressure on the Federal Reserve to raise interest rates for a second time this fall. The consumer price index climbed 0.4% from September, the U.S. Bureau of Labor Statistics (BLS) said on Nov. 10, above the 0.3% forecast in a Dow Jones survey of economists cited by CNBC. Core prices, which strip out volatile food and energy costs, rose 0.3%, compared with an expected 0.2%.
The report was the last inflation reading of its kind the Fed will see before its Dec. 8-9 policy meeting, and traders now treat a rate increase there as all but certain.
What the numbers show
October’s headline gain was smaller than September’s 0.6% jump, when energy prices surged 5.2%, according to the BLS. But the details offered little comfort. Food prices rose 0.5%, with grocery prices up 0.4% and restaurant meals up 0.5%. Yahoo Finance reported that meat and dairy drove much of the increase, with lettuce up 7.3% and baby food up 5.1% in a single month.
Other notable moves in the government data included:
- Energy prices rose 0.7%, and gasoline rose 1.0% on a seasonally adjusted basis.
- Shelter costs, the largest component of the index, rose 0.3%, after 0.4% in September.
- Transportation services rose 0.8%, and car insurance rose 0.7%, according to a breakdown by the financial news site StockTitan.
- Used car and truck prices fell 1.2%, one of the few categories to decline.
The most worrying signal for policymakers may be the persistence of core inflation. Core prices have now risen 0.3% in each of the past three months, the first such streak since late 2024, StockTitan noted. Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, summed up the release on X: “CPI for October is not great.”
A report with no annual rate
Unusually, the October release did not include the familiar year-over-year inflation figure. The BLS said it did not collect survey data for October 2025 because of a lapse in federal funding during last year’s government shutdown, so it cannot publish 12-month changes for most of its indexes this month. The most recent official annual readings, for September, showed overall prices up 3.7% and core prices up 2.6%, according to StockTitan.
One exception was gasoline, whose year-earlier price was later recovered. The BLS table shows pump prices up 37.4% from October 2025 before seasonal adjustment, an unusually large increase that helps explain why the cost of living has become a central political issue. Vice President JD Vance has cited it as a reason Republicans lost ground in this month’s midterm elections, CNBC reported. Annual figures are due to return with the November report on Dec. 10.
Wages are barely keeping up. Average hourly earnings rose 0.4% in October, matching the rise in prices, which left inflation-adjusted pay unchanged for the month, StockTitan reported.
Why the Fed is preparing to tighten
The Fed began the year expecting to cut rates, CNBC noted, as inflation appeared to be cooling and the effects of President Donald Trump’s tariffs seemed to be fading. Instead, it raised its benchmark rate by a quarter of a percentage point in September, its first increase since 2023, and held it in a range of 3.75% to 4% in October. Inflation has now run above the central bank’s 2% target for more than five years.
Christopher Waller, a member of the Fed’s Board of Governors, said in London on Nov. 10 that he was leaning toward supporting a quarter-point increase in December, and that a larger half-point move should be considered if core prices rose around 0.3% or more, a threshold October’s data met. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, told PBS NewsHour that the country has “a real inflation issue on our hands.”
What comes next
According to CNBC, the CME FedWatch tool, which tracks futures-market pricing, showed traders fully expecting a December increase, with almost 88% betting on a quarter-point move and the rest on a half-point hike. Yahoo Finance had put the odds of a half-point move at about 15% shortly after the report’s release.
Economists differ on how far the Fed will need to go. Chester Liaw, an economist at OCBC Group Research, said the report “strengthens the near-term case for tightening” but that a quarter-point hike should be enough for December. Robert Sockin, chief U.S. economist at the investment manager PGIM, forecast a full percentage point of increases in total, beginning in December and continuing quarterly, and warned that tariff policy could keep price pressure elevated. Before the December meeting, policymakers will also see the October personal consumption expenditures price index, the Fed’s preferred inflation gauge.
