US CPI rises by 0.4% in October, beating forecasts: could Fed hike rate by 50 bps?

US consumer inflation accelerated more than expected in October, adding to concerns that price pressures remain persistent and strengthening expectations of another Federal Reserve rate hike in December, potentially by a larger margin.

The Consumer Price Index (CPI) increased 0.4% on a seasonally adjusted basis during the month, according to data from the Bureau of Labor Statistics (BLS).

Economists polled by Dow Jones had expected a smaller increase of 0.3%.

Core inflation, which excludes volatile food and energy prices, also came in above expectations.

The index rose 0.3% in October, matching the increases recorded in September and August.

Economists had forecast a 0.2% rise.

The BLS did not publish an annual inflation rate for October.

A government shutdown in October 2025 prevented the agency from collecting sufficient data, leaving no comparable figure for calculating the year-on-year change.

Shelter and food costs contribute to inflation

Shelter costs remained a significant contributor to the monthly increase in consumer prices.

The shelter index rose 0.3% in October, accounting for more than 30% of the increase in the all-items CPI.

Food prices also continued to climb.

The food index increased 0.5% during the month, with food purchased for consumption at home rising 0.4%.

Prices for food away from home increased 0.5%.

The energy index advanced 0.7% in October, following a much sharper 5.2% increase in September.

Gasoline prices rose 1% over the month, compared with a 9.1% increase in September.

However, before seasonal adjustment, gasoline prices declined 0.7% in October.

Electricity prices increased 0.9%, while the natural gas index fell 0.8%.

CPI data follows strong jobs data

The hotter-than-expected inflation reading follows a stronger-than-anticipated employment report last week.

Nonfarm payrolls increased by a seasonally adjusted 165,000 in October, substantially higher than the estimated 59,000, while the unemployment rate declined to 4.1%, below economists’ expectations of 4.2%.

Wage growth also accelerated.

Average hourly earnings rose 0.4% month-on-month and 3.1% year-on-year, exceeding forecasts of 0.3% and 2.9%, respectively.

The combination of resilient employment, stronger wage growth and persistent inflation could give policymakers further reason to maintain a restrictive monetary policy.

Markets react negatively; treasury yields climb

Financial markets reacted negatively to the inflation data as expectations of a rate hike increased.

Futures tied to the broader market index fell 0.5% after the release, while Nasdaq-100 futures declined 1%.

Dow Jones Industrial Average futures were little changed.

The 10-year Treasury yield, a benchmark for mortgage, auto and credit card borrowing costs, rose more than 7 basis points to 4.938%.

The 30-year Treasury yield, which is often sensitive to geopolitical developments and long-term inflation expectations, gained more than 3 basis points to 5.29%.

The two-year Treasury yield, which is more closely tied to expectations for near-term Fed policy, jumped more than 15 basis points to 4.698%.

Interest rate futures were pricing in an approximately 85% probability of the Fed raising its benchmark rate by 25 basis points at its December 8-9 meeting, taking the target range to 4.00%-4.25% after last week’s jobs report.

Markets were also assigning a greater-than-even chance of another increase as early as March.

After Tuesday’s CPI data, traders were fully pricing in a 25-basis-point rate hike at the December meeting, while assigning a 13.6% probability to a larger, 50-basis-point increase, according to CME Group’s FedWatch tool.

Fed governor Waller has backed a 50 bps hike in December

Ahead of the inflation report, Fed Governor Christopher Waller said in a speech on Tuesday that he believed a December rate hike was likely.

He also left the door open to a larger, half-percentage-point increase if inflationary pressures persisted.

“While the precise timing of the hikes doesn’t matter, ensuring that the promised hikes are implemented in a reasonable period of time does,” he said.

Waller added that a core CPI increase of 0.3% or more from September could warrant a stronger policy response.

“In that case, I believe a 50 basis point hike in the policy ​rate should be considered at the December meeting.”

Anything less, he said, risks hurting the Fed’s inflation-fighting credibility, given inflation that’s too high and appears to be broadening ⁠out.

Fed to now decide between a 25 bps and a 50 bps hike in December

Experts agree with Waller’s statement.

“Especially following Governor Waller’s latest comments, you can set aside any debate over whether the Fed will hike by 25 basis points or pause next month; the conversation will center on 25 bps versus 50 bps. (For what it is worth, I am in the 25 bps camp regarding what the Fed will ultimately do.),” wrote Mohamed A El-Erian on X.

Ole S Hansen, Head of Commodity Strategy at Saxo also said that following the release of the report, markets have moved to fully price in a 25-basis-point rate hike at next month’s FOMC meeting.

“The question now is whether traders will begin positioning for a larger 50-basis-point move following Fed Governor Waller’s hawkish comments earlier today,” he said.

He, however, said the risk for those betting on further tightening, especially a larger 50-basis-point hike, is that inflation pressures may already be easing.

“While the November CPI report will not be released until after the December FOMC meeting, signs of moderating price pressures – through lower energy prices – in the intervening weeks could put a spanner in the works of an increasingly hawkish market,” he said.

Such a development would leave the Fed facing a difficult balancing act between responding to backward-looking inflation data and avoiding excessive tightening just as underlying price pressures begin to subside, he said.

AI disclosure: AI tools assisted with research and drafting of this piece. An Invezz editor reviewed the facts, sources and wording before publication. Any opinions or analysis are Invezz’s, not those of an automated system.

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