October Prices Rise 0.4%, Hotter Than Expected, Setting Up a December Fed Rate Hike

Consumer prices rose more than economists expected in October, giving Americans little relief from high living costs and strengthening the case for another Federal Reserve rate increase next month.

The Consumer Price Index rose 0.4% on a monthly basis, the Labor Department reported Tuesday. Economists polled by FactSet had predicted a 0.3% increase. The monthly gain did cool from September, when headline inflation jumped 0.6%. The department did not report a year-over-year inflation rate for October 2026 because the 2025 government shutdown left it without October 2025 consumer price data for comparison.

Core inflation, which strips out volatile food and energy prices, rose 0.3% in October, the same as in September and slightly above forecasts. It was the third straight month at that pace. "Today's CPI report suggests underlying inflation remains more persistent than the Fed would like," said Andrew Davis, head of investment strategy at Bryn Mawr Trust. "Core prices rose 0.3% for the third consecutive month, indicating that underlying price pressures have yet to meaningfully ease."

The report suggests the price pressure is spreading beyond energy. Shelter costs rose 0.3% and accounted for more than 30% of the monthly increase, according to the Labor Department. Food prices accelerated, rising 0.5% after staying flat in September. Energy prices, which have surged because of the Iran war, rose just 0.7% in October after jumping 5.2% in September. Josh Hirt, senior U.S. economist at Vanguard, said elevated energy prices have led to a "longer-lasting shock pass-through" to core inflation, and Vanguard raised its year-end 2026 core inflation forecast to 3.2%.

There was some relief at the pump. The national average price for gasoline fell below $4 a gallon on Tuesday for the first time in nearly four months, according to AAA, as stations switch to cheaper winter-blend fuel and drivers cut back on travel. Global oil prices have also dipped on hopes that the midterm results could open the door to a deal between the U.S. and Iran to end the war.

The data is one of the first economic snapshots since the midterm elections, in which voter frustration over prices was a central theme. Wall Street analysts now expect the Fed to raise rates when it meets in December. "This is 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," said James McCann, senior economist for investment strategy at Edward Jones. The open question, he said, is whether the increase is a quarter or a half percentage point.

CME Group's FedWatch tool showed an 85% chance of a 0.25-point hike in December and a 15% chance of a 0.50-point hike after the report. The Fed held rates steady at its October meeting, though two Federal Open Market Committee members voted for an increase. Speaking at a conference in London on Tuesday, Fed Governor Christopher Waller said policymakers should consider the larger move at the Dec. 8-9 meeting. "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," Waller said.