U.S. consumer prices rose faster than expected in October, and the report has made a Federal Reserve interest rate increase in December look all but certain, with some officials openly discussing a bigger move than markets had priced in.
The consumer price index rose 0.4 percent in October from September, the Labor Department said on Tuesday, above the 0.3 percent increase analysts had projected. It was a slowdown from September's 0.6 percent jump, but core prices — which exclude food and energy — rose 0.3 percent for a third straight month, also above the 0.2 percent forecast.
Food prices drove the miss. The food index rose 0.5 percent in October after being unchanged in September, and grocery-store inflation accelerated notably after a string of quiet readings, Oxford Economics said in a note. Medical care, household furnishings and several other categories also rose. Energy prices, by contrast, moderated sharply: the gasoline index rose just 1 percent, far below the 9.1 percent spike in September that followed renewed clashes in the U.S.-Iran war over the summer.
The Labor Department was unable to publish a year-over-year inflation rate because there was no consumer price report in October 2025, when the government was shut down. The Federal Reserve Bank of Cleveland estimated the annual increase at 3.8 percent, well above the Fed's 2 percent target.
The report "sets the stage for a December Fed hike," Oxford Economics wrote, adding that food inflation "drove the forecast miss of last month's headline CPI." Joseph Brusuelas, chief economist at RSM, said a December rate increase was "baked in the cake given that this is the final CPI report that the Fed will get to observe."
Hours before the data was released, Fed Governor Christopher Waller signaled support for a December increase, saying the central bank must act "sooner rather than later, to return inflation to a path that will reach 2 percent in the medium term." Waller said he was "leaning towards" a 25-basis-point rise even if October inflation had moderated — but if core prices came in around 0.3 percent or higher, "a 50-basis point hike in the policy rate should be considered at the December meeting." October's core reading met that condition exactly.
Dallas Fed President Lorie Logan also strongly endorsed more tightening, urging "prompt" action before persistent inflation "becomes baked into behaviour." Logan estimated the Fed funds rate must rise by "at least 50 basis points" to bring inflation back to target, and said the central bank needs "at least two more 25-basis-point rate increases."
Futures markets now see a December hike as essentially guaranteed, with about 85 percent of trader bets expecting a quarter-point increase and 15 percent predicting a half-point move. The Fed's next meeting is December 8-9, and the November inflation report is not due until December 10, the morning after that meeting ends — making October's print the last one policymakers will see before they vote.
The report follows last week's midterm elections, in which voters turned sharply against President Donald Trump's Republican Party in part because of persistent inflation. The Fed's benchmark rate currently stands at 3.75 to 4.00 percent.
