"The situation is not optimistic": Driven by soaring food and rent prices, the CPI inflation rate rose 0.4% month-on-month in October.
2026-11-11 00:58:28
On Tuesday (November 10), data released by the U.S. Department of Labor showed that the Consumer Price Index (CPI) rose 0.4% month-over-month in October, higher than economists' expectations of 0.3%, but lower than September's 0.6% increase. Core inflation, excluding volatile food and energy prices, rose 0.3% month-over-month, higher than market expectations of 0.2%, while the market had anticipated the figure would remain unchanged from September. The sub-indices showed a mixed picture, with new car prices rising only slightly by 0.2% month-over-month, while used car prices fell sharply by 1.2%, signaling a cooling of inflation in some areas. 
Due to the government shutdown last year, the U.S. Bureau of Labor Statistics was unable to release complete data for October 2025, so this part was not included in this October report. Also, because of the lack of a base from the same period last year, there is no official year-on-year inflation reading this time. However, many economists predict that the year-on-year rate of inflation has accelerated. Housing costs were the main driver of price increases in October. Owner-equivalent rent, which measures the cost of holding a home, rose 0.3% month-on-month, while home rents rose 0.2% month-on-month. Food prices rose 0.5% month-on-month, mainly driven by increases in meat and dairy prices. Lettuce prices surged 7.3%, and infant formula prices soared 5.1%. Transportation costs rose 0.8% month-on-month, medical supplies prices rose 0.5%, and medical service prices rose 0.3%. Economist Justin Wolfors stated, "People are hoping that inflation will return to normal levels, but at present, this is just a wishful thinking, far from a reality." Energy prices had been rising steadily, but the rate of increase in energy prices moderated in October. Energy costs rose 0.7% month-over-month last month, a significant drop from the 5.2% increase in September. The market is hoping for a de-escalation of tensions in the Middle East to drive down energy prices; currently, US retail gasoline prices have fallen below $4 per gallon for the first time since mid-July. If this trend continues, it will significantly drag down overall inflation in November, but the November CPI data will not be released until the day after the December FOMC meeting. Kevin Gordon, head of macro research and strategy at Charles Schwab's Financial Research Center, posted on social media, "The October CPI data is not optimistic." In another post, he wrote, "Prices have risen across a wide range of goods and services, and the spread of inflation remains severe," referring to price increases across many consumer goods categories. Federal Reserve Governor Waller stated before the data release that even if inflation improves, he would favor a 25 basis point rate hike in December; if core CPI reaches or exceeds 0.3%, a 50 basis point rate hike should be considered. The core CPI this time precisely hit that threshold, and after the news, the market's probability of a 50 basis point rate hike rose to about 15%. The speech pushed up US Treasury yields, with the 10-year and 2-year yields rising by 6 and 13 basis points, respectively. The market has now fully priced in a 25 basis point rate hike in December, consistent with ING's assessment. Before Waller's speech, the market expected a rate hike of only 20 basis points. ING believes the Fed may have observed leading signals from the energy sector in advance, thus choosing a 25 basis point rate hike. They also predict that continued weakness in interest rate-sensitive sectors, sluggish wage growth, and declining housing and energy prices will collectively suppress prices, leading to no further rate hikes by the Fed in 2027. This inflation data released on Tuesday is the last CPI report the Fed will receive before its December 8-9 policy meeting. However, later this month, the Fed will receive its more important inflation measure—the Personal Consumption Expenditures Price Index (PCE). This higher-than-expected inflation report, coupled with a strong, even accelerating, job market, has convinced the trading market that the Fed will raise rates in December. Traders now generally believe the Fed will begin raising rates in December. Moody's chief economist Mark Zandi commented that the data was "uncomfortably high," and the Federal Reserve would not welcome such an outcome, significantly increasing the likelihood of another rate hike in December. Core inflation remained around 0.3%, well above the approximately 0.2% level needed to achieve the 2% inflation target. FWDBONDS chief economist Christopher Rupkey bluntly stated that consumers' inflation nightmare continues, with no signs of easing. The Fed needs to use "bigger pipes" to extinguish the inflation fire. Federated Hermes fixed income strategist Karen Manna said this was the report the market least wanted to see. The hotter inflation data raises questions about whether the Fed has done enough tightening and reinforces the risk that interest rates need to be kept at higher levels for a longer period. TD Economics and other institutions reached a consensus: the report slightly exceeded expectations, further solidifying the rationale for a 25bp rate hike in December. Inflationary pressures are widespread, with core services (especially the super-core segment excluding housing) remaining hot; energy sector disturbances have subsided, but overall inflation has not substantially cooled down. The market has almost fully priced in a 25bp rate hike in December.
Due to the government shutdown last year, the U.S. Bureau of Labor Statistics was unable to release complete data for October 2025, so this part was not included in this October report. Also, because of the lack of a base from the same period last year, there is no official year-on-year inflation reading this time. However, many economists predict that the year-on-year rate of inflation has accelerated. Housing costs were the main driver of price increases in October. Owner-equivalent rent, which measures the cost of holding a home, rose 0.3% month-on-month, while home rents rose 0.2% month-on-month. Food prices rose 0.5% month-on-month, mainly driven by increases in meat and dairy prices. Lettuce prices surged 7.3%, and infant formula prices soared 5.1%. Transportation costs rose 0.8% month-on-month, medical supplies prices rose 0.5%, and medical service prices rose 0.3%. Economist Justin Wolfors stated, "People are hoping that inflation will return to normal levels, but at present, this is just a wishful thinking, far from a reality." Energy prices had been rising steadily, but the rate of increase in energy prices moderated in October. Energy costs rose 0.7% month-over-month last month, a significant drop from the 5.2% increase in September. The market is hoping for a de-escalation of tensions in the Middle East to drive down energy prices; currently, US retail gasoline prices have fallen below $4 per gallon for the first time since mid-July. If this trend continues, it will significantly drag down overall inflation in November, but the November CPI data will not be released until the day after the December FOMC meeting. Kevin Gordon, head of macro research and strategy at Charles Schwab's Financial Research Center, posted on social media, "The October CPI data is not optimistic." In another post, he wrote, "Prices have risen across a wide range of goods and services, and the spread of inflation remains severe," referring to price increases across many consumer goods categories. Federal Reserve Governor Waller stated before the data release that even if inflation improves, he would favor a 25 basis point rate hike in December; if core CPI reaches or exceeds 0.3%, a 50 basis point rate hike should be considered. The core CPI this time precisely hit that threshold, and after the news, the market's probability of a 50 basis point rate hike rose to about 15%. The speech pushed up US Treasury yields, with the 10-year and 2-year yields rising by 6 and 13 basis points, respectively. The market has now fully priced in a 25 basis point rate hike in December, consistent with ING's assessment. Before Waller's speech, the market expected a rate hike of only 20 basis points. ING believes the Fed may have observed leading signals from the energy sector in advance, thus choosing a 25 basis point rate hike. They also predict that continued weakness in interest rate-sensitive sectors, sluggish wage growth, and declining housing and energy prices will collectively suppress prices, leading to no further rate hikes by the Fed in 2027. This inflation data released on Tuesday is the last CPI report the Fed will receive before its December 8-9 policy meeting. However, later this month, the Fed will receive its more important inflation measure—the Personal Consumption Expenditures Price Index (PCE). This higher-than-expected inflation report, coupled with a strong, even accelerating, job market, has convinced the trading market that the Fed will raise rates in December. Traders now generally believe the Fed will begin raising rates in December. Moody's chief economist Mark Zandi commented that the data was "uncomfortably high," and the Federal Reserve would not welcome such an outcome, significantly increasing the likelihood of another rate hike in December. Core inflation remained around 0.3%, well above the approximately 0.2% level needed to achieve the 2% inflation target. FWDBONDS chief economist Christopher Rupkey bluntly stated that consumers' inflation nightmare continues, with no signs of easing. The Fed needs to use "bigger pipes" to extinguish the inflation fire. Federated Hermes fixed income strategist Karen Manna said this was the report the market least wanted to see. The hotter inflation data raises questions about whether the Fed has done enough tightening and reinforces the risk that interest rates need to be kept at higher levels for a longer period. TD Economics and other institutions reached a consensus: the report slightly exceeded expectations, further solidifying the rationale for a 25bp rate hike in December. Inflationary pressures are widespread, with core services (especially the super-core segment excluding housing) remaining hot; energy sector disturbances have subsided, but overall inflation has not substantially cooled down. The market has almost fully priced in a 25bp rate hike in December.
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