October inflation climbs, boosting odds of December Fed rate hike

Americans are still feeling the squeeze as everyday expenses continue to climb, creating another challenge for President Donald Trump and the Federal Reserve.

Consumer prices increased 0.4% in October, according to the Labor Department’s latest report released yesterday. Although inflation slowed from September’s 0.6% rise, it remained above economists’ expectations.

Even after removing food and energy costs, prices climbed 0.3%, showing that inflationary pressure continues across other parts of the economy. Shelter prices climbed 0.3%, making up nearly a third of the headline increase reported by the BLS.

Food prices accelerated by 0.5% last month, with grocery costs surging at their fastest pace since April.

Baby food and formula prices jumped 5.1%, recording their largest monthly increase since the government began tracking the category nearly 30 years ago. Beef prices also continued to rise as strong demand and limited cattle supplies pushed up costs.

Energy costs rose 0.7%, a more modest increase than September’s 5.2% surge. Gas prices averaged $4.32 a gallon last month, according to AAA.

Last year’s October government shutdown left the Labor Department without comparable year-over-year inflation data. Economists estimate that annual inflation reached approximately 4% in October, compared with 3.7% in September.

The hotter-than-expected inflation report rattled financial markets, sending US stocks lower and government bond yields higher.

Rising living costs have also become a major political concern. Frustration over expensive essentials played a role in last week’s midterm elections, when Democrats secured key victories in Congress.

What would the Fed do?
With no further CPI reports due before the central bank’s December meeting, the latest reading is an important signal. Although CPI is not the Fed’s preferred inflation gauge, it is widely expected to raise rates by a quarter point.

Meanwhile, Federal Reserve Governor Christopher Waller called for a 0.25-percentage-point interest rate increase in December, even if inflation cools.

He also urged policymakers to consider a larger 0.50-point hike if core inflation rises by 0.3% or more, warning that delaying planned increases could damage the Fed’s credibility.