Gasoline Decline Expected to Slow Monthly Inflation
The Bureau of Labor Statistics is scheduled to release October’s consumer price index on Tuesday at 8:30 a.m., with economists expecting some moderation in monthly inflation rather than a broad retreat in prices. According to the Dow Jones consensus forecast cited by CNBC, the overall index is expected to rise 0.3%, down from September’s 0.6% increase. Core CPI, which excludes food and energy, is forecast to advance 0.2%, compared with 0.3% the previous month.
Lower fuel costs should provide some relief. Energy Information Administration figures show gasoline prices fell more than 4% in October, following a surge that had added more than a dollar per gallon over the preceding year. Nevertheless, Federal Reserve officials are concerned that inflation initially fueled by President Donald Trump’s tariffs and the Iran war is spreading beyond the areas directly exposed to those disruptions.
Missing Data Complicate the Annual Comparison
The October release will not include an official year-over-year inflation reading. A government shutdown a year earlier prevented the BLS from gathering some of the information needed to construct a complete index for that period, leaving no comparable October level against which to measure annual growth.
Bank of America has instead estimated annual inflation using an assumed baseline derived by interpolating last year’s data. On that basis, the bank puts headline inflation at 3.8% and core inflation at 2.7%, each 0.1 percentage point above September and above the Fed’s 2% inflation objective. Those estimates are not official BLS annual readings. They also illustrate why a slower monthly increase would not necessarily mean that annual price pressures had eased.
Strong Employment Keeps Attention on Affordability
The inflation report arrives against a backdrop of firm economic activity. Gross domestic product grew 3.4% in the third quarter, while the Atlanta Fed’s tracking estimate points to 3.5% growth in the final quarter of the year. October nonfarm payrolls increased by a stronger-than-expected 165,000, and the unemployment rate slipped to 4.1%. Inflation-adjusted wage growth, however, has been negative.
Speaking Monday at an event in his district, Chicago Fed President Austan Goolsbee said the economy was approaching what historically would be regarded as full employment, while inflation remained the central problem. He described affordability and business costs as recurring concerns in conversations across the district. His remarks underscored the Fed’s increasing confidence in labor-market conditions and its continued concern about the cost of living.
Services and AI Investment Raise Persistence Concerns
Goolsbee said inflation had not subsided as would normally be expected following supply shocks and tariffs. He pointed to emerging pressures in services that appeared less directly connected to oil prices or trade measures. He also said the artificial-intelligence data-center expansion was beginning to resemble demand-driven overheating, rather than simply a temporary disruption to supply.
The investment boom is increasing demand for construction workers, electricity and equipment, potentially lifting costs even though AI could deliver productivity benefits over the longer term, Goolsbee said. Bank of America similarly expects tariff effects to diminish but sees AI-related demand as a possible source of higher goods prices. The bank also remains concerned about persistent services inflation and pressures involving health insurance and automobiles.
December Rate Decision Comes Into Focus
The Fed left its benchmark interest rate unchanged in October, but CME FedWatch data cited by CNBC show markets assigning a probability above 80% to a quarter-percentage-point increase in December. Goolsbee did not indicate whether he favored another hike, although he said current conditions could justify action. He warned that allowing demand to overheat could make restoring price stability painful. He does not vote on the Federal Open Market Committee this year but will have a vote in 2027.
Bank of America economist Stephen Juneau described Tuesday’s release as the final inflation report before the Fed’s December 8–9 meeting. In a client note, he said the bank’s forecast, if realized, would effectively cement its expectation for another 25-basis-point increase, other conditions unchanged. He argued that inflation would probably need to deliver a clearly soft 0.1% monthly reading to discourage a hike. The bank sees a worsening stock-market sell-off as the larger risk to its call, leaving both the inflation figures and financial-market conditions important to the December outlook.
Source: CNBC