US: October’s Inflation Report Cements the Case for a December Hike  

The Consumer Price Index (CPI) rose 0.4% month-on-month (m/m) in October, a tick higher than the Bloomberg consensus forecast. Over the past six months headline inflation has been 3.1% at an annualized pace, off from 5.6% earlier this spring.

• There are no October 2025 CPI figures due to last year’s government shut down, so we focus on more recent three & six-month annualized trends.

Energy prices rose 0.7% m/m on top of a 5.2% jump in September, led by a 1% increase in gasoline prices. Food prices also jumped 0.5% m/m, after a period of cooler gains.

Excluding food and energy, core prices rose 0.3% m/m, also a tick higher than expectations. Over the past six months core inflation has ran at a 2.7% annualized, pace up from 2.5% at the start of the year.

Price growth for core services rose 0.3% m/m, versus 0.4% m/m in September. Within this category, the heavily weighted shelter index rose 0.3% m/m. Larger increases were seen for recreation (+0.8% m/m), and motor vehicle insurance (+0.7% m/m). “Supercore” inflation, core services ex-shelter, has heated up in recent months (04.% m/m in October) and is running at 5.7% annualized over the past three months.

Core goods inflation rose to 0.2% m/m from 0.3% in the month prior. Notable increases were recorded in household furnishings and supplies (+0.7%), recreation commodities (+0.7%), and medical care commodities (0.5%).

Key Implications

October’s inflation report came in a bit hotter than expectations, cementing the case for another quarter-point hike at the Dec. 9th meeting. Inflation pressures are fairly broad-based across categories, and most importantly show little sign of cooling.

The source of inflation pressure has shifted from tariffs to higher energy costs and strong demand for tech related goods due to the AI boom. Where it hasn’t’ shifted is lower. The Fed’s preferred core inflation metric has been above the 2% target for more than five years and has been moving further away from 2% this year. Markets have a quarter-point hike in December fully priced in, and we agree.