Inflation Posts Slowest Rise in Three Months as Gas Prices Drop
Inflation cooled in October, rising at its slowest pace in three months as gas prices fell at the pump. But prices still climbed faster than economists expected, and the latest numbers are unlikely to stop the Federal Reserve from raising interest rates again next month.
The consumer price index rose 0.4% from September, according to the Bureau of Labor Statistics. That was down from a 0.6% jump the month before but above the roughly 0.3% increase economists had forecast.
The Key Numbers
Core inflation, which strips out volatile food and energy prices, rose 0.3% for the third straight month. Economists had expected 0.2%, according to Finwire.
This month's report did not include a year-over-year figure. That's because the government shutdown in October 2025 led the Bureau of Labor Statistics to cancel that month's report, leaving no comparison point. In September, annual inflation stood at 3.7%, up from the 3.4% reading in August.
Inflation has not been at the Fed's 2% target since early 2021.
Gas Prices Fall, but Other Costs Rise
Drivers got some relief in October. The average price of a gallon of gas fell from $4.41 to $4.18 over the month, a drop of more than 5%, according to AAA. AAA has also reported the national average dipping below $4 for the first time since July.
The relief follows a stretch when gas prices surged this fall. Oil prices have also eased, with Brent crude falling below $90 a barrel after hitting $118 on Oct. 30.
Still, the government's gasoline index rose 1% for the month, and fuel oil climbed 2%. Electricity prices rose 0.9%. Diesel remains about 70% more expensive than at the start of the year, which matters for shoppers because diesel fuels the trucks that deliver goods to stores.
The price surge this year has been tied to the war with Iran, which began in February, as well as the boom in artificial intelligence.
Groceries and Everyday Items Climb
Grocery prices rose by the most since April, with big increases in dairy and in fruits and vegetables. Prices at restaurants and for takeout rose 0.5%.
Baby food and infant formula jumped 5.1%, their largest monthly increase on record.
Other notable increases included hospital services, doctor visits, car insurance and airfares. New vehicle prices also rose, while used cars and trucks fell 1.2%.
Smartphone prices climbed a record 1.4%, partly because AI-driven demand for data center memory has pushed up costs. Toy prices rose 1.8% heading into the holiday shopping season.
Higher costs for shelter, food and energy drove the overall increase, while core prices were lifted by recreation, medical care, car insurance, household furnishings and education, according to Kiplinger.
What It Means for Interest Rates
The Fed raised rates in mid-September for the first time in three years and held steady in late October. Its next decision comes at the Dec. 8-9 meeting, and many economists see another hike as very likely.
Fed Governor Christopher Waller said he would back a quarter-point increase in December even if October's numbers improved. He also said a larger half-point hike should be considered if core inflation rose 0.3% or more, which it did.
"Let's just say it. September's inflation data were bad. There was no silver lining," Waller said. He added that "hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take."
The Fed has not raised rates by half a point since 2022 and generally prefers smaller steps.
Kiplinger's David Payne expects annual inflation to end the year at 4% and core inflation to end the year at 2.7%.
Curious for more stories that keep you informed and entertained? From the latest headlines to everyday insights, YourLifeBuzz has more to explore. Dive into what’s next.