New York (AFP) – US inflation data released Tuesday slowed slightly in October but still overshot analyst estimates, raising expectations for further Federal Reserve interest rate hikes. The consumer price index for October rose 0.4 percent from September, down from the prior month’s 0.6 percent increase, according to Labor Department data. Analysts had projected a 0.3 percent increase.
The improvement from the prior month reflected a significant moderation in energy price increases from September. The prior CPI report had shown the effects of a big jump in fuel prices following renewed clashes in the US-Iran war over the summer. But food prices shot higher in October, along with medical care, household furnishings, and several other categories.
The report follows last week’s US midterm elections in which voters turned sharply against President Donald Trump’s Republican Party in part due to persistent inflation. The Labor Department was unable to translate the figures into a year-over-year number because there was no report in October 2025 due to a government shutdown. But the Federal Reserve Bank of Cleveland estimated the jump as 3.8 percent, well above the Fed’s two percent target. The report “sets the stage for a December Fed hike,” read the headline on a note from Oxford Economics.
“Though energy prices moderated as expected, it was food inflation that drove the forecast miss of last month’s headline CPI,” Oxford Economics said in the note. “Grocery-store inflation accelerated notably after a string of quiescent readings, underscoring the lags between energy price shocks and nonenergy consumer prices.” Price hikes for energy slowed significantly compared with the prior report, with the gasoline index rising one percent — far below the 9.1 percent spike in September from August. The index for food rose 0.5 percent in October after being unchanged in September.
– ‘Supersize’ rate hike? – Joseph Brusuelas, chief economist at RSM, said the inflation report could keep a “supersize hike on the table at the December Fed meeting,” alluding to comments earlier Tuesday from Fed Governor Christopher Waller. “In my estimation this requires rate hikes by the Fed and we think that a December rate hike is baked in the cake given that this is the final CPI report that the Fed will get to observe,” Brusuelas said.
Futures markets now see a December rate hike as essentially guaranteed, with 85 percent of trader bets expecting a one-quarter percentage point hike and 15 predicting a half-percentage point increase. Earlier Tuesday, Waller signaled support for a December rate increase due to persistently elevated inflation, saying the central bank must act “sooner rather than later, to return inflation to a path that will reach two percent in the medium term.”
Waller cited inflationary effects from the artificial intelligence buildout and pointed to Fed research that suggests “energy price pressures may pass through to goods and services in a more sustained way than in the past.” Speaking a few hours before the CPI release, Waller said he was “leaning towards” a 25 basis point rate hike in December even with an October report showing moderation in pricing pressures. But if October pricing dynamics are similar to last month’s, “then a stronger policy move may be needed,” he said. “In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting,” Waller added. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”
Dallas Fed President Lorie Logan also strongly endorsed additional rate hikes, citing the data as she urged “prompt” action before persistent inflation “becomes baked into behavior,” she said in a speech late Tuesday morning. Logan estimated that the Fed funds rate must rise by “at least 50 basis points” in order “to bring the inflation trend back to target,” she said. Logan acknowledged that energy prices have played a role, but described inflationary trends as “broader than that,” noting that higher prices in categories like visiting the doctor or dining out “aren’t particularly sensitive to tariffs, conflict in the Middle East or surging demand for computer chips.”
“It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25-basis-point rate increases,” Logan said.
© 2024 AFP
