U.S. consumer prices rise 0.4%, above economists' 0.3% forecast

U.S. consumer prices rose 0.4% in October, exceeding economists’ expectations, the Bureau of Labor Statistics said Tuesday, as energy, shelter and food became more expensive.

A Dow Jones survey had put economists’ forecast at 0.3%. Core prices, a measure excluding food and energy, climbed 0.3%, compared with the 0.2% increase economists had predicted. That matched the level a Federal Reserve governor had identified earlier Tuesday as a reason to consider a half-point interest-rate rise.

Traders then fully priced in a quarter-point increase at the December meeting, while the probability of a half-point move rose to 13.6% from around zero, CME Group’s FedWatch tool showed.

More than 30% of the total increase came from shelter, while electricity recorded its biggest monthly price rise since April. Gasoline remains at a record for this time of year, about a dollar a gallon above its price when the U.S. went to war with Iran, NPR reported. Still, AAA’s national average for regular gasoline has dropped by 38 cents in the past month to $3.98 a gallon.

“This was the report the market could least afford to see,” Karen Manna, a fixed income investment strategist at Federated Hermes, told CNBC.

On Oct. 28, Fed Chair Kevin Warsh described the central bank’s responsibility. “Our job is to ensure that relative price changes in some sectors do not broaden across the economy, and that inflation expectations remain as they are anchored,” Warsh said.

The report followed the midterm elections a week earlier, when Democrats won control of the House and Senate from Republicans.

In London on Tuesday, before the inflation figures came out, Fed Governor Christopher Waller said a half-point increase in December was possible. Waller said that option should be considered if core inflation was “around 0.3.”

“Economic activity is strong, the labor market is stable, but inflation is too high,” Waller said.

Dallas Fed President Lorie Logan said after the release that two further quarter-point increases are needed. “It may be possible to move more rapidly this winter than the [Federal Open Market Committee] has moved so far this fall,” Logan said.

She said a pause after those increases would allow officials to assess economic and financial developments before determining any further action.

Stocks dropped after the release, while Treasury yields climbed. A hotter inflation print “raises fresh questions about whether the Fed has done enough to contain price pressures,” Manna told CNBC. It also “reinforces the risk that interest rates need to move higher and stay there for longer,” she said.

The drop in gasoline prices brought AAA’s average under $4 a gallon for the first time in three months. NPR attributed the decline to lower crude oil prices, the change to a less expensive winter fuel blend and the usual seasonal fall in demand.

Missing data complicates annual comparison

The bureau did not calculate an annual inflation rate because the government shutdown prevented collection of consumer price data for October 2025. The unadjusted gasoline index nevertheless registered a 37.4% increase over that month across 12 months.

The headline index had risen 0.6% in September, and core prices increased 0.3%, matching October’s pace. Energy advanced 5.2% in September, with gasoline up 9.1%. In October, the gasoline index increased 1%.

The Fed lifted rates by a quarter point in September, its first increase since 2023, bringing the range to 3.75% to 4%. Retail sales climbed 0.8% that month, while the economy expanded at a 3.4% annual rate in the July-September quarter, mostly because of consumer spending.

Fed officials voted 10-2 at their October meeting to leave the benchmark rate in that range. The central bank’s annual inflation goal is 2%, a level inflation has exceeded for about 5½ years.

Estimates put annual rate near 4%

Riccardo Trezzi, a former Fed economist and founder of consulting firm Underlying Inflation, estimates that prices climbed 4% from a year earlier, compared with 3.7% in September. Using rough estimates for the missing data, he puts the annual rise in core prices at 2.8%, up from 2.6%.

“It's worrisome. There is a sense that inflation is broad, persistent, a little bit everywhere,” Trezzi told The Associated Press. “The Fed should be very worried,” he said.

Oxford Economics estimated an annual rate of 3.9% by interpolating the missing October 2025 data, the highest reading since May, The Guardian reported. Before the release, the Cleveland Fed estimated a 3.7% annual rise, which NPR said would exceed the year’s 3.1% average wage gain and mean the typical worker was losing buying power.

“It might not be a recession, but if you're still living paycheck to paycheck and watching gas prices go up, grocery prices go up, your rent costs go up, it's not going to feel like a robust economy,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, told the AP.

Higher costs are reaching heavily imported products, including apparel, recreation goods and IT equipment, RBC Capital Markets economist Mike Reid told NPR. “You're starting to see higher freight costs get passed through,” Reid said.

In the National Federation of Independent Business’ October survey, a net 37% of businesses planned price increases in the next three months, the highest reading since July 2022.

About two-thirds of respondents in the AP Voter Poll of 100,000 voters blamed President Donald Trump’s policies for higher costs, while about 9 in 10 called living costs a crucial or major factor in their vote. Trump has acknowledged voter anger over the Iran war and gas prices but shown no sign of changing course, the AP reported. Republicans including JD Vance have cited frustration over gas prices as a reason for the party’s poor election showing, The Guardian reported.

“I would say, by Thanksgiving, so long as we don't get any wild cards geopolitically, the national average could be $3.75 a gallon,” said Patrick De Haan, a petroleum analyst for GasBuddy.

Diesel averages $6.15 a gallon, according to AAA. “When a country like Russia isn't exporting diesel, that is very impactful for the global market. So diesel prices – they will come down but they will still remain very elevated,” De Haan told NPR.

Logan said she worries the personal consumption expenditures price index, the Fed’s primary inflation-forecasting measure, could rise when the figures arrive later this month.

The Federal Open Market Committee meets Dec. 8-9.