October CPI Expected to Cool as Energy Prices Stabilize, but Fed Hike Odds Remain High

Key points

• Headline CPI is expected to rise 0.3% in October, compared to 0.6% in September.
• Core CPI is forecast to increase 0.2%, down from 0.3% in the previous month.
• Year-over-year inflation figures will be omitted from the report due to the 2025 government shutdown.
• Gasoline prices saw only a marginal rise, contributing to the slower headline inflation pace.
• Traders see an 83% chance of a 25 basis point interest rate hike by the Federal Reserve in December.

Background

Inflation has remained a central focus for the Federal Reserve since the first rate hike in three years occurred in mid-September 2026. Following hotter-than-expected producer price index data in October, market expectations shifted toward at least one additional rate hike by year's end. The Fed paused in late October, acknowledging that inflation remains elevated but requiring more information to determine the appropriate policy path. This upcoming CPI report serves as the final inflation data point before the Fed’s December meeting, following a period where core PCE inflation cooled in August but energy prices spiked due to geopolitical tensions.

How outlets are covering it

While most economists agree that monthly inflation will cool, there is divergence on the magnitude and underlying risks. Bloomberg’s consensus expects a 0.3% headline rise, while UBS projects a slightly lower 0.26% due to minimal energy contributions. Conversely, RBC Economics forecasts a 0.3% rise for both headline and core CPI, arguing that core goods prices are accelerating due to imported goods and that services inflation will remain sticky. BMO Financial Group notes that while monthly core prices may simmer down, the annual rate could rise to 3.9% due to energy cost pass-throughs. Wells Fargo and Barclays both anticipate a December rate hike, with Barclays highlighting a step-down in core goods like apparel and used cars, while Wells Fargo warns that the disinflationary process remains slow and uneven.

Why it matters

The October CPI data is critical for determining the Federal Reserve’s monetary policy stance in December. A cooler report might provide temporary relief, but persistent services inflation and rising airfares suggest that price stability remains elusive. The absence of year-over-year data complicates the analysis, forcing investors to focus on month-over-month trends. Given the strong labor market and potential for further energy price spikes, the Fed is likely to prioritize fighting inflation over supporting growth, potentially leading to higher borrowing costs for consumers and businesses.

What to watch

The Bureau of Labor Statistics will release the October CPI report at 8:30 am Eastern Time on Tuesday, November 10. The Federal Reserve will hold its next policy meeting on December 8-9, where it is expected to decide on a 25 basis point interest rate hike. Investors will also watch for the Personal Consumption Expenditures index later in November, which is the Fed’s preferred measure of inflation. The outcome of these reports will influence market expectations for future rate decisions and the trajectory of inflation in 2027.