October inflation cinches December rate hike

November 10, 2026

The consumer price index (CPI) rose 0.4% in October, below the 0.6% in September. The increase exceeded market expectations: the gains were broad-based. The year-over-year gains have to be interpolated due to the loss of the CPI and employment report a year ago during the six-week government shutdown. That suggests that the CPI rose 4.2% from a year ago, after rising 3.7% in September. That is well above the implied 3.1% average hourly wages for the month; that helps explain why so many individuals feel as though they are losing purchasing power, even when they are employed.   

The three-month annualized pace, which is a better measure of momentum, was more worrisome. The three-month measure jumped to 5.7%, up from 4.6% in September. That is the hottest pace since May. 

Prices at the gas pump rose a more tepid 1%, after surging more than 9% in September. They began to recede late in October in response to a drop in demand post-Labor Day, a change to cheaper fall gas formulations and gas tax holidays passed by many states ahead of the midterm elections. Those declines should show up in November. A global shortage of refining capacity is expected to limit the initial drop in prices, even if a resolution in the Middle East is achieved. 

Electricity and fuel oil prices came in hot as well, jumping 0.9% and 2.0%, respectively. The rise in energy prices in data center heavy states was one of many issues that galvanized voters in a backlash to AI in the midterm elections. The exit polls revealed everything from cost to job concerns from voters, and crossed every age, income strata and party affiliation. 

Food prices jumped 0.5% during the month, the fastest increase since April. Food at home rose 0.4%, with baby formula up 5.1%, its largest increase ever. Snacks jumped 1% while beef prices surged 0.9% in October. Shortages of cattle and shipping costs are boosting those prices. Food away from home jumped 0.5%, again the largest increase since April. Restaurants and bars have seen input costs jump, as labor shortages intensify due to curbs on immigration. Smaller mom-and-pop operations are beginning to shed workers and shut their doors. 

Core CPI, which excludes food and energy, rose 0.3% in October. We have three months in a row with core at 0.3%, which is 0.1% above the level needed to achieve price stability.  Gains were broad-based and showed up across both goods and services. 

The largest increases on the goods side came from furniture and household goods. Appliances surged 1.3%, while furniture prices moved up 1.2%. Medical care commodities, such as pharmaceuticals, increased 0.5%, the first increase since December 2025. There was really only one major offset, which was the drop in used vehicle prices. Demand has receded with an increase in prime delinquencies and tighter credit conditions for buyers with low credit scores.

Shelter costs rose 0.3%. Hotel room rates were up 0.6%, which is still hot and being buoyed by the willingness of affluent consumers to step out and pay up. 

The core jumped 3.7% on a three-month annualized basis in October from 3.4% in September. That is the hottest pace since April 2024.

The super core services, which exclude shelter and energy services, jumped 0.4% in October. That is the same as last month and way too hot for comfort. The biggest cost increase was in recreational services, which include sporting events, concerts, streaming and pet services. Intra-city mass transit, which includes subways, trains and buses, jumped 6.6%, the biggest increase since September 2020. Prices for services including motor vehicle maintenance to insurance jumped. Medical services, which remain one of the largest sticking points in year-over-year measures of inflation, rose 0.3%, the same as last month.

The three-month annualized increase rounded to 5.0% in October, from 4.6% in September. That is the hottest pace for service sector in more than two years.

Prelude to a hotter PCE report 

The components that feed into the Federal Reserve’s preferred inflation gage, the personal consumption expenditures index (PCE), suggest an even hotter read coming up for October. The data cinch a December rate hike. The only question is whether it will be one quarter or one-half percent. Fed Governor Chris Waller warned he is considering a half percent hike, speaking in London. He likely had already seen this data. He said a one-half percent hike was needed to shore up the Fed’s “credibility.”

Separately, the medical costs, which cover a broader category in the PCE, are expected to come in hotter than the CPI. That is prior to the surge in health insurance premiums slated to go into effect at the start of the year. The rise is due to aging demographics and a loss in immigrant labor, which has caused rationing, notably in eldercare.