US Prices Rose 0.4% in October, Hotter Than Forecast, and Traders Now Fully Price a December Fed Hike

Inflation did not give the Federal Reserve a reason to wait. US consumer prices rose 0.4% in October, more than the 0.3% economists expected, after a 0.6% jump in September. Core prices, which leave out food and energy, rose 0.3% against a 0.2% forecast, the third straight month at that pace.

There is no headline annual rate this time. Last year's government shutdown stopped the Bureau of Labor Statistics from collecting October 2025 prices, so the monthly report had nothing to compare against. The last annual reading, for September, was 3.7%, far above the Fed's 2% target.

Where the money went

Housing did the heavy lifting. Shelter costs rose 0.3% and made up more than 30% of the overall increase. Food climbed 0.5%, with beef up 0.9% and snacks up 1%. Energy rose 0.7% and gasoline 1%, even though pump prices have been falling in recent weeks. Transportation services jumped 0.8%, airline fares rose 0.4%, and medical care goods gained 0.5%. Used cars were the main relief, down 1.2%.

Markets stop hedging

The report removed most of the doubt about December. Traders now fully price two quarter point hikes by March, the first one next month, and the two year Treasury yield rose 14 basis points to 4.69%. Fed Governor Christopher Waller had already said the Fed should raise rates in December even on a soft reading, and should consider a half point move if inflation got worse.

The numbers land on top of last week's blowout October jobs report, which showed a labor market that is not cooling. A strong job market and sticky prices are exactly the mix that keeps a central bank tightening.

Oil may not save the month

The one hopeful sign is energy. Brent crude slipped below $90 a barrel on Tuesday for the first time since late August after President Trump said he would hold off on new strikes against Iran. But October's prices were already locked in, and food, rent and services are not moving with oil.

The political cost is already showing. High prices weighed heavily on Republicans in last week's midterm elections, and this report gives voters heading into the holidays little reason to feel better.

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