Inflation Cools But Stays Above Target

Consumer price inflation rose 0.4 percent in October, marking the smallest monthly increase in three months. The Bureau of Labor Statistics reported that energy costs drove this moderation, offering a slight pause to shoppers who have faced high prices for most of the year. However, the upward trend in costs has not reversed. In September, inflation climbed 0.6 percent.

Core inflation, which strips out volatile food and energy prices, increased 0.3 percent from September. Both figures exceeded the general forecasts of economists. The report released on Tuesday lacked year-over-year data because the government shutdown in October 2025 forced the BLS to cancel that month's report. The slowdown in October was largely due to a drop in gasoline prices, which fell from $4.41 per gallon on October 1 to $4.18 by the end of the month. That represents a decline of more than 5 percent.

Data from AAA showed on Tuesday that gasoline prices dropped below $4 per gallon for the first time since July. Crude oil prices continued a recent sharp decline, with Brent crude briefly dipping under $90 after hitting $118 on October 30. Diesel prices remain a concern, sitting 70 percent higher than at the start of the year. This increase is much steeper than for regular gasoline and affects the transportation sector that moves goods to stores worldwide.

Economists had predicted a 0.3 percent rise in overall inflation and a 0.2 percent rise in core inflation. Federal Reserve Governor Christopher Waller emphasized the importance of the October numbers before the report was released. Speaking at a central bank conference in London on Tuesday, Waller said he expected improvement over September. Even if that happens, he said he would support a 25 basis point increase at the Federal Reserve meeting scheduled for December 8 and 9.

Waller noted that September inflation data was poor, with no positive aspects. In September, inflation jumped again to reach 3.7 percent on an annual basis. Waller suggested that if inflation proves substantially higher than expected, the Federal Open Market Committee might need to act more forcefully. He indicated that if core inflation rises by 0.3 percent or more, he would propose a 50 basis point rate hike in December. The Fed has not raised rates by 0.50 percent since 2022, usually preferring smaller, successive 0.25 percent increases to monitor the effects.

Waller concluded that raising rates by only 25 basis points would risk the central bank's credibility, a risk he is unwilling to take. Inflation has not met the Fed's 2 percent target since early 2021.