Consumer prices climbed at a monthly pace of 0.4% in October, according to the Labor Department, beating economist forecasts and ramping up expectations for a Federal Reserve interest rate increase before the end of the year. The monthly increase cooled from September's 0.6% rise but came in hotter than the 0.3% gain that economists polled by FactSet had predicted. The Labor Department was unable to calculate a year-over-year inflation rate for October because a 2025 government shutdown left it without comparable data from October 2025.
Beyond headline inflation, underlying price pressures proved stubborn. Core inflation, which excludes volatile energy and food costs, rose 0.3% in October for the third consecutive month at that pace, slightly above economist expectations. Shelter costs, which increased 0.3% during the month, accounted for more than 30% of the overall monthly increase, the Labor Department said. Food prices accelerated to a 0.5% monthly gain in October after holding flat in September. These broadening pressures led Vanguard's senior US economist Josh Hirt to raise the investment company's year-end 2026 core inflation forecast to 3.2%.
Energy prices provided some relief, rising just 0.7% in October compared to 5.2% in September, as gasoline prices fell below $4 a gallon nationally for the first time in nearly four months, according to AAA. The decline reflected both a shift to cheaper winter-blend fuel and reduced summer travel demand, alongside falling global oil costs driven partly by hopes that the midterm elections could open negotiations between the United States and Iran to end their war.
Wall Street analysts view the data as pointing toward a December rate increase. CME Group's FedWatch tool showed an 85% probability of a 0.25 percentage-point hike and a 15% probability of a 0.50 percentage-point increase when the Fed meets on December 8-9, according to the latest figures. Christopher Waller, a member of the Fed's Board of Governors, said on Tuesday during a London conference that policymakers should consider a half-percentage-point increase, warning that "hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take." Edward Jones' James McCann described the latest inflation data as "the last look at CPI inflation the Fed will get before its December meeting, and it most likely seals the deal on a rate hike to close the year."
For American savers, borrowers and investors, higher interest rates would increase returns on savings accounts and certificates of deposit while raising borrowing costs for mortgages, auto loans and credit cards.