US October inflation comes in hotter than expected, Fed faces pressure to raise rates

US consumer inflation rose more than expected in October, keeping pressure on the Federal Reserve to tighten monetary policy and strengthening market expectations of an interest rate hike at its December 8-9 meeting.

The Consumer Price Index (CPI) increased 0.4% month-on-month in October, down from a 0.6% rise in September, according to data released by the US Labour Department on Tuesday (November 10). Core CPI, which excludes volatile food and energy prices, also rose 0.3%, matching the previous month's increase.

Both the headline and core inflation readings were 0.1 percentage point above economists' forecasts.

The Labour Department did not release year-on-year inflation figures for October as the government shutdown last year disrupted data collection, leaving the agency without comparable figures for October 2025.

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The latest inflation reading suggests that price pressures remain persistent and above the Federal Reserve's 2% target. It also comes after inflation and the rising cost of living emerged as major concerns for American voters, contributing to sweeping Democratic victories in last week's midterm elections.

Democrats secured majorities in both the House and Senate, but the election results have also put pressure on the party to address voters' concerns over affordability and household expenses.

President Donald Trump has acknowledged voter dissatisfaction over the Iran war and rising gasoline prices, but has so far shown no indication of changing course.

Fed rate hike expectations strengthen

The October CPI report is the last inflation reading available to Federal Reserve policymakers before their December 8-9 meeting.

Investors are increasingly positioning for another interest rate increase at the meeting, following a quarter-percentage-point hike in September and the central bank's decision to leave rates unchanged in October.

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The persistence of core inflation could also bring a larger rate increase into consideration. Ahead of Tuesday's data release, Federal Reserve Governor Christopher Waller said the central bank may need to consider a half-percentage-point increase if core CPI rises by 0.3% or more.

The October reading met that threshold.

The underlying inflation trend also points to continued price pressures. Data compiled by Bloomberg showed that core CPI increased at an annualised rate of 3.7% over the three months through October and 2.7% over the six-month period.

US Treasury yields moved higher, while stock futures declined following the inflation report as investors increased bets on a larger interest rate increase.

Food, housing and electricity costs rise

The CPI report showed that price increases extended across several essential spending categories.

Grocery prices climbed 0.4% in October, marking the biggest monthly increase since April. Owners' equivalent rent, a measure of housing costs and the largest component of CPI, rose 0.3%. Electricity prices increased 0.9%, while motor vehicle insurance costs recorded their biggest monthly increase in more than a year.

Gasoline prices advanced 1% during October. However, oil prices have fallen over the past week amid growing optimism over diplomatic efforts to end the war in the Middle East.

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The impact of higher energy costs was also visible in other parts of the services sector. Airfares rose 0.4%, while delivery service prices also increased. Broader services prices, excluding energy and rents, climbed 0.4%, according to Bloomberg data.

Health insurance prices, however, recorded their steepest decline in more than three years. The Bureau of Labour Statistics incorporated a semi-annual update in October using industry data on insurance premiums and benefits, which is a key input in calculating health insurance inflation.

Recreation and tariff-exposed goods add to price pressures

Recreation services prices recorded their biggest increase this year in October. Some economists had expected upward pressure in the category following recent price increase announcements by streaming platforms, including Disney+ and Hulu.

Core goods prices rose 0.2% despite a decline in used-car prices.

Products particularly exposed to tariffs, including household furnishings, appliances and toys, recorded material price increases during the month. The report also showed some moderation in prices of products linked to the artificial intelligence infrastructure buildout.

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Computer software and accessories prices declined 1.5% in October. Prices of computers, peripherals and smart home assistants recorded their slowest increase in four months.