In October, U.S. inflation saw a slowdown from the sharp rise in September, as the increase in gasoline prices was more modest. However, categories such as food and housing continued to exert upward pressure on consumer prices.

The U.S. Bureau of Labor Statistics announced on Tuesday that the Consumer Price Index (CPI) for October rose by 0.4% on a month-on-month basis after adjusting for seasonal factors. This increase was lower than the 0.6% in September but higher than the economists' forecast of 0.3%.

“It’s uncomfortably high,” said Mark Zandi, Moody’s chief economist ( Mark Zandi ), “and the Federal Reserve won’t be happy about that. This undoubtedly increases the likelihood of another interest rate hike in December.”

The Federal Reserve uses inflation data to guide its interest rate policy. After a recent rise in inflation, the U.S. central bank raised interest rates in September, a move that economists generally attributed to the war with Iran. At its most recent meeting in October, the Federal Reserve decided to keep interest rates unchanged.

Economists usually pay attention to what are known as "core" CPI indicators – that is, excluding the more volatile prices of food and energy – in order to observe potential inflation trends in the U.S. economy.

Zandi stated that in October, the core CPI index rose by 0.3% month-on-month, the same as in September and August. He said that if the monthly reading can stabilize around 0.2%, it would be more in line with the Federal Reserve's annual inflation target of 2%.

Zandi stated that inflation has been above the Federal Reserve's target for over five consecutive years.

Due to a prolonged federal government shutdown a year ago, the U.S. Bureau of Labor Statistics did not release year-over-year inflation data in its latest CPI report. That shutdown lasted from October 1st to November 12th and disrupted the agency's regular data collection, resulting in the absence of an inflation report for October 2025.

Jason Pride, the Chief Investment Strategy and Research Officer at Glenmede Financial Management Company, wrote in an email on Tuesday: "Investors don't need year-over-year data to see that this is a hot inflation report; prices have not returned to the Federal Reserve's 2% target along a sustainable path."

"To get the Federal Reserve not to raise interest rates in December, there would have been a need for highly convincing evidence of cooling inflation, but this report presents the exact opposite," he said.

Why is the inflation rate of CPI still relatively high?

Economists point out that there are mainly four reasons why the figure in October CPI was higher than expected.

1. Housing

Zandi said that on Tuesday, according to the CPI report, housing may be the biggest contributor to inflation exceeding expectations.

He stated that housing is the largest component within CPI, and changes in this category can significantly affect the monthly readings of the index.

Data from the U.S. Bureau of Labor Statistics shows that the “housing” CPI index rose by 0.3% in October, contributing to more than 30% of the CPI increase.

However, Zandi stated that he does not believe this trend will continue, as it is not in line with the trend of rental prices in the US market.

“I feel that the monthly fluctuations of the CPI data are very large,” he said, “It’s very different every month.”

2. Energy

But economists say that broader factors are also contributing to rising prices.

Josh Hett, a senior American economist at Pioneer Group ( Vanguard Group ), wrote in an email on Tuesday: "Today's core inflation reflects three shocks that exceeded expectations: tariffs, energy prices, and demand related to artificial intelligence."

Economists say that the war in Iran has pushed up oil prices, which in turn has raised the cost of fuels such as gasoline, diesel, and aviation fuel that are derived from crude oil.

CPI data shows that gasoline prices increased by 1% in October, a significant slowdown from the 9.1% monthly increase in September.

Economists say that although diesel prices have fallen from recent record highs, they are still at a high level and may have a more widespread impact on the U.S. economy in the coming months.

Capital Economics North American senior economist Thomas Ryan ( Thomas Ryan ) said: "The transmission of diesel prices to CPI various sectors is very slow, as it affects transportation costs."

"These things all take time," Ryan said, "I suspect that it will continue to be a driving force for inflation for at least the next three to six months."

Zandi said that in October, there were already signs of diesel prices permeating into a wider range of areas, such as food prices. Higher diesel prices will increase the cost of transporting food to supermarket shelves.

According to CPI data, food prices increased by 0.5% in October, while they remained unchanged in September.

Rising costs of aviation fuel have also prompted airlines to increase ticket prices, economists say. According to a CPI report, airfare prices rose by 0.4% in October, following increases of 1.2%, 2.7%, and 3.8% in the preceding months respectively.

3. Tariffs

At the same time, Zandi stated that the inflationary effects of the additional tariffs imposed by the Trump administration should subside before the end of the year, provided that the White House does not push for more import taxes.

He said that some physical commodity categories such as toys, furniture, and household appliances experienced high inflation rates in October, possibly because companies have passed on the tariff costs to consumers.

4. Artificial Intelligence

Economists say that the construction of data centers that provide computing power for artificial intelligence is driving up the prices of electricity and consumer electronics products.

Ryan said that these data centers have led to a shortage of technical equipment, such as storage chips used in household electronic products like iPhone.