The latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics shows that U.S. inflation remained stubbornly high in October, rising 0.4 percent after a 0.6 percent jump in September. Core prices, which exclude volatile food and energy items, increased by 0.3 percent. The year-over-year figures for October were not released due to data collection issues during last year’s government shutdown, but calculations by The New York Times suggest overall prices were around 4 percent higher compared to the same time last year, up from 3.7 percent in September. Core prices rose about 2.8 percent over the same period.
Food prices were a significant driver of inflation in October, rising 0.5 percent for the month and about 3 percent year-over-year. This increase is likely due to surging energy prices, particularly diesel, which has driven up farming costs. Energy prices overall saw a modest rise of 0.7 percent in October, following a 5.2 percent jump in September. Gasoline prices increased by 1 percent, a significant slowdown from the previous month’s 9.1 percent rise. Electricity prices also rose nearly 1 percent.
The Federal Reserve is set to meet for its final gathering of the year on December 8-9, and policymakers have signaled that another interest rate hike is likely. Fed Governor Christopher J. Waller hinted at the possibility of a larger-than-usual half-point increase if inflation does not show signs of moderating. Waller warned that a quarter-point increase would suffice if price pressures improved, but a 0.3 percent or higher rise in core inflation, as seen in October, could risk the Fed’s credibility. Two-year Treasury yields rose over 0.1 percentage points to 4.67 percent as investors anticipated further rate hikes.
U.S. stocks opened lower on Tuesday, with the S&P 500 down 0.7 percent and the Nasdaq index down 1 percent. Despite the inflation concerns, there is little worry about a supersized half-point rate hike, according to Seema Shah, chief global strategist for Principal Asset Management. The labor market remains strong, but wage growth has lagged behind inflation, with average hourly earnings up 3.1 percent year-over-year, well below the roughly 4 percent annual inflation pace. Other notable price increases included medical care commodities, up 0.5 percent, and computers and related items, up 11.8 percent year-over-year.