Consumer Prices Rose 0.4% in October, Topping Forecasts and Pointing to a December Fed Rate Hike

U.S. consumer prices rose 0.4% in October, more than economists expected, leaving the Federal Reserve on course to raise interest rates next month, the Labor Department reported on Tuesday.

The increase followed a 0.6% rise in September. Economists polled by Reuters had forecast a 0.3% climb for October. Core prices, which leave out food and energy, rose 0.3% last month, also above the 0.2% forecast, after gaining 0.3% in September.

The report carried an unusual gap: the Bureau of Labor Statistics did not publish year-over-year inflation readings because last year’s federal government shutdown prevented the collection of consumer price data in October 2025, leaving no comparison base. Annual consumer inflation was 3.7% in September.

Shelter costs rose 0.3% in October and accounted for more than 30% of the monthly increase, the bureau said. Food prices also climbed, with the food-at-home index up 0.4%. Beef prices rose 0.9%, uncooked poultry, including turkey, rose 1.9%, and fruits and vegetables and dairy products each rose 0.6%. Food away from home rose 0.5%.

Gas and energy costs

Energy prices rose 0.7% in October, after a 5.2% jump in September. Gasoline prices rose 1% over the month, a much slower pace than September’s 9.1% increase. Electricity costs were up 0.9%, while natural gas prices fell 0.8%.

According to AAA, the national average cost of a gallon of regular gasoline was $3.98 as of Nov. 10, down from $4.37 last month but up from $3.07 a year ago. Airline fares rose 0.4% in October, while health insurance costs fell 1.8%.

Worker pay kept pace with inflation for the month: average hourly earnings for employees on private nonfarm payrolls were up 0.4% in October, the department estimated on Nov. 6. Real average hourly earnings, adjusted for inflation, were unchanged from September to October.

What it means for the Fed

Early on Tuesday, financial markets fully priced in a 25-basis-point rate hike next month, Reuters reported. The Fed left its benchmark overnight interest rate in the 3.75%-4.00% range last month. Most traders, according to CME FedWatch, expect policymakers to raise the rate by a quarter point on Dec. 9, which would bring the target range to 4% to 4.25%.

Fed Governor Christopher Waller, speaking in London on Tuesday before the inflation data was released, said that if the October report showed core inflation around 0.3% or higher, “a stronger policy move may be needed.” He said a 50-basis-point hike “should be considered at the December meeting,” adding: “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

“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,” James McCann, senior economist of investment strategy at Edward Jones, said in a note. “On balance we think it is most likely that the Fed will deliver a 25 basis points move.”

Inflation is running well above the Fed’s 2% target. Reuters reported that the U.S.-Israeli war with Iran has pushed up oil prices, and the import tariffs put in place by the Trump administration last year have added to the cost of living. Both the consumer price index and the personal consumption expenditures index the Fed tracks are running above 3%.

The higher prices are already shaping holiday plans. A LendingTree survey of 2,000 U.S. adults found 51% plan to host Thanksgiving dinner this year, down from 59% in 2025, and 53% of those preparing to celebrate said inflation is affecting their plans.

Reporting based on coverage by Reuters and USA Today.