October's Consumer Price Index showed that costs for goods and services across the US economy continued to push higher.
US inflation stayed at elevated levels in October, underscoring the case for the Federal Reserve to raise interest rates again this year.
The Bureau of Labor Statistics released its latest CPI report on Tuesday: headline prices rose 0.4% month on month in October, compared with a 0.6% gain in September, while core CPI, which strips out volatile food and energy, climbed 0.3% month on month.
Because of last year's government shutdown, the bureau was unable to collect raw data for October 2025, so it did not publish an official year-on-year inflation figure for October. Overall prices were roughly 4% higher than a year earlier, above the 3.7% reading in September, while core prices were up about 2.8% year on year over the same period.
Food was one of the biggest drivers of October inflation: food prices rose 0.5% month on month and were up about 3% year on year. That largely stems from the recent surge in energy prices, especially diesel, which has sharply raised farmers' production costs.
Energy prices overall edged up 0.7% month on month in October, after a 5.2% jump in September. Gasoline rose just 1%, a marked slowdown from the previous period's 9.1% increase, while electricity prices climbed nearly 1% month on month.
This October CPI report is the last inflation reading before the Fed's year-end policy meeting on December 8-9; November CPI will be published the day after the meeting ends. Policymakers have broadly signalled that they will raise rates next month to contain price pressures that keep running above target.
While the Fed tracks CPI closely, its official 2% inflation goal is measured by the Personal Consumption Expenditures price index, which has exceeded target for nearly six years. Fed officials also watch services prices to gauge underlying inflation trends, focusing on core services excluding housing, commonly known as supercore inflation. That measure rose 0.4% month on month in October, putting its three-month annualised pace at close to 5.5%.
Fed Governor Christopher Waller said on Tuesday that a one-off 50 basis point hike, larger than the usual move, could not be ruled out at the December meeting if inflation shows no sign of cooling. Speaking at an event hosted by the Bank of England, he said a standard 25 basis point increase would be sufficient if price pressures improve as expected in October. But he warned that if core inflation comes in at 0.3% or higher, which is exactly what the October data showed, the Fed would risk damaging its credibility if it failed to act more forcefully and did not step up to 50 basis points. "Only raising by 25 basis points would put our credibility at risk, and that is a risk I am not willing to take," he said.
The two-year Treasury yield, which is highly sensitive to rate expectations, moved sharply higher on Tuesday, rising more than 0.1 percentage point to 4.67%, as investors bet the Fed will need to tighten more aggressively to curb inflation.
Before the October CPI release, most Fed officials favoured a gradual path: a 25 basis point hike in September and a vote to hold the rate range at 3.75%-4% late last month. That meeting took place just days before the midterm elections, though Fed Chair Kevin Warsh denied that political factors influenced internal decisions.
Whether the Fed shifts to a more aggressive pace depends on whether more officials start to worry that price pressures are spreading and that current policy is not strong enough to contain inflation. October employment data released last Friday showed the labour market remains solid, meaning the Fed can focus on inflation.
October also marked the seventh straight month in which the 12-month rise in prices outpaced wage growth. Average hourly earnings rose 3.1% year on year in October, well below the roughly 4% inflation rate.
One important but obvious reminder: the price increases captured in today's inflation report occurred before election day. Even so, it highlights the difficult task facing Democrats in the new House and Senate, who have promised to use their newly won majorities to tackle the rising cost of living.
Even though used car and truck prices fell sharply, inflation still came in above expectations: used vehicles dropped 1.2% month on month and 3.3% year on year. This is one of the few components in the report for which a direct year-on-year figure can be given, since the data comes from hard statistics rather than a sampling survey.
The two-year Treasury yield rose sharply, as this instrument is highly sensitive to changes in rate expectations. Today's hotter-than-expected inflation data led investors to price in more rate hikes next year. The two-year yield climbed more than 0.1 percentage point, a large move for this tenor, and now stands at 4.69%.
The report is a discouraging piece of news for households' purchasing power: inflation directly swallowed that month's wage gains. After accounting for recent price increases, the average weekly wage was flat in October, with no growth.
Restaurant services, however, were a bigger driver. Restaurant prices resumed rising year on year after easing earlier this year. The restaurant sector relies more on labour than grocery stores, and part of the upward pressure comes from labour shortages; continued immigration restrictions have made hiring harder.
Within the food category: fruit and vegetable prices rose 0.6% month on month, dairy rose 0.6% and beef rose 0.9%.
Food was a major factor pushing up overall CPI. By one estimate, food prices rose 0.5% month on month and 3% year on year. Behind this is the transmission of energy costs into crop production, with diesel costs already sharply increasing the burden on farmers, as well as the El Nino weather pattern hitting global agricultural output.
Stocks briefly fell after the hotter-than-expected inflation data, but S&P 500 futures have since recovered and are up 0.06%. Higher inflation means higher interest rates, and higher rates usually weigh on market performance.
The price-boosting effect of tariffs has weakened in recent months, but traces of import duties being passed through to consumer prices are still visible: apparel rose about 4.4% year on year, and footwear prices also rose quickly. Furniture and bedding, however, fell about 1.3% year on year, while appliances rose only about 0.5%.
Energy prices overall rose slightly in October, with the exception of household natural gas used for heating and cooking; gasoline and heating oil, also used for heating, posted the largest month-on-month gains within the energy category.
Faced with the many distortions from tariffs and oil prices, some economists inside the Fed and at other institutions treat services prices as the core gauge of underlying inflation, tracking core services excluding housing, or supercore inflation. Today's data offered no relief on this front: supercore inflation rose 0.4% month on month in October, putting its three-month annualised pace at close to 5.5%.
This report will intensify the market debate over whether the Fed needs to raise rates more aggressively to contain inflation. So far, officials have taken a gradual approach: a hike in September and a pause in October. Markets widely expect the Fed to raise rates again in December.
Toys are another category heavily affected by tariffs, rising about 8.9% year on year, and with the holiday season approaching, this round of price increases will be clearly felt by consumers.
Waller's remarks before the CPI release added uncertainty to the Fed's decision: he suggested a one-off 50 basis point hike in December could not be ruled out if price pressures do not ease as expected. The CPI data confirmed exactly that scenario.
Despite uncertainty over the year-on-year figures, one thing is clear: this is the seventh consecutive month in which the 12-month rise in prices has outpaced wages. Average hourly earnings rose 3.1% year on year in October, while prices rose about 4%.
Coffee lovers have some good news: last year's sharp coffee price increases have cooled. Coffee prices fell 3.6% month on month and were up only 2.3% year on year.
Egg prices have become a hot topic in political discussion. Food prices rose broadly in October, but eggs rose only 0.6% month on month and were estimated to be down about 15.7% year on year.
In his London speech, Waller said that even if oil fell below $90 a barrel this morning, he expects energy prices to remain high. He pointed to high shipping costs and limited refining capacity. "So, unlike how crude oil behaves when Middle East tensions ease, high US diesel prices are unlikely to fall back quickly," he said.
Be careful about cutlery price increases this holiday season. Estimates show silverware such as tableware and knives and forks rose 1.3% month on month and about 12% year on year.
Another area where higher oil prices squeeze consumers is airfares. Estimates show airfares rose 0.4% month on month and jumped 27.8% year on year, meaning holiday travel costs more this year than last.
When inflation first began to pick up this spring, economists offered an optimistic interpretation: the increases came mainly from energy, with few signs that higher prices would spread through the broader economy. But in recent months, the picture has clearly changed. Consumer goods prices excluding energy ran at a three-month annualised pace of 3.6%.
Jeff Ostrowski, a housing analyst at consumer finance firm Bankrate, said high home prices are keeping potential buyers on the sidelines, and the hotter-than-expected inflation data will likely keep mortgage rates elevated. "It's hard to imagine that just eight months ago mortgage rates were hovering near 6%, and now it's hard to see them falling back below 7%," he added. "That means the housing market will likely remain sluggish, with home sales staying low."
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said: "All of this is critical for markets. If the Fed stays patient and slows its pace, bulls can adapt more easily; if the Fed turns aggressive, that will become a huge headwind that markets will struggle to overcome next year."
Lettuce prices have rebounded and returned to the table. A cyclospora outbreak this summer hit leafy green supply and sent prices plunging; now lettuce is up 7.9% month on month and about 9.2% year on year.
Housing carries a weighting of more than one-third of CPI. Home prices surged during the pandemic and have now largely returned to long-term average growth. The housing component rose 0.3% month on month, a slight slowdown from September, and was up an estimated 3.4% year on year. Hotels were the strongest part of the housing component, rising 0.6% month on month, with hotel prices running above their usual pace throughout the year.
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