The market expects the overall CPI month-on-month increase to drop from 0.6% to 0.3%, while the core CPI is expected to slow to 0.2%. Without a year-on-year reference, how will the Federal Reserve gauge inflation trends?

Source: Jin Ten Data

Due to data omissions caused by the government shutdown last year, this report cannot provide year-on-year inflation rates.

On Tuesday at 21:30, the U.S. Bureau of Labor Statistics will release the October Consumer Price Index (CPI). Investors will focus on whether the prices that have significantly risen for two consecutive months begin to cool, and whether the latest data can alter market expectations for further interest rate hikes by the Federal Reserve.

A Reuters survey shows that economists expect the overall CPI in October to rise by 0.3% month-on-month, lower than September's 0.6%; the core CPI, excluding food and energy prices, is expected to rise by 0.2% month-on-month, likely marking the smallest increase in three months.

This CPI report has a special aspect to note. Due to the federal government shutdown in October 2025, which resulted in the missing CPI report for that month, the U.S. Bureau of Labor Statistics will lack a reference to publish year-on-year (YOY) inflation data. The month-on-month (MOM) rate will be released as normal. Therefore, the market will rely more on the month-on-month changes in the overall and core CPI, as well as specific price categories, to judge inflation trends.

Additionally, this report will be the last CPI data before the Federal Reserve's December interest rate meeting (the next CPI will be released later on the day of the Fed's interest rate decision). The previously released October non-farm payroll report was stronger than market expectations, further reinforcing the judgment that the U.S. economy remains resilient. For Wall Street, which is reassessing interest rate prospects, whether inflation can decrease as expected has become an important variable determining the next phase of asset price trends.

Inflation Expected to Cool, But Price Pressures Persist

Previously, the U.S. CPI for September rose by 0.6% month-on-month, marking the largest single-month increase since April this year, and the significant rise over two consecutive months has heightened market concerns about the persistence of inflation.

The latest predictions from economists indicate that the overall price increase in October may significantly slow. The core CPI is expected to rise by 0.2% month-on-month, down from 0.3% in September. If the predictions come true, it will provide some buffer to the previously strengthening inflation data.

Citi economists expect that the transmission of high energy costs to other goods prices may be relatively limited, and price increases in the service sector will remain moderate.

Bloomberg's economic research team predicts that the overall CPI might have a real month-on-month increase of about 0.25% in October, and the core CPI around 0.24%. The research team believes that price increases for both goods and services may slow down, with changes in prices for used cars, consumer electronics, and housing-related services being noteworthy.

However, the retreat in energy prices does not mean that inflation pressures have been eliminated. Although international oil prices fell sharply last week to below $100 per barrel, the cumulative increase since the beginning of the year remains close to 60%, and natural gas prices are also far above early-year levels.

The ongoing high energy prices are driving up transportation, manufacturing, agriculture, and household expenditure costs. Whether businesses can continue to absorb these costs or pass on the pressure through higher prices for goods and services will affect the inflation trend in the coming months.

Corporate Inflation Concerns Rising, Market Needs to Watch Price Transmission

Recent corporate earnings reports reflect that U.S. inflation pressures have broadly impacted different industries.

Statistics from Bloomberg show that in the earnings conference calls of S&P 500 index component companies in October, the term "inflation" and related vocabulary were mentioned 820 times, the highest level since February 2024. Among them, industrial companies contributed about a quarter of the mentions, reflecting pressures from rising energy and logistics costs.

General Motors expects that rising prices for commodities, logistics, and storage chips will bring about $2 billion in adverse impacts this year. Coating manufacturer PPG Industries stated that it is considering raising product prices to alleviate raw material cost pressures.

Consumer goods companies are facing similar issues. Seasoning manufacturer McCormick warned that high shipping costs and weak consumer spending are simultaneously affecting operations, and the company still needs to evaluate the inflation and cost outlook for 2027.

These corporate statements make the specific categories of the October CPI more valuable for reference. If the impact of energy prices is mainly concentrated on a few categories such as gasoline, while core prices for goods and services start to slow, the market may consider the risk of further inflation diffusion somewhat alleviated. However, if prices for housing, transportation, and other services continue to grow rapidly, the persistence of inflation will still be a major issue facing the Federal Reserve.

This Friday, the U.S. will also release the October Producer Price Index (PPI). Economists expect the year-on-year increase in PPI to accelerate to 6.6%, reaching the highest level in nearly four years. This data will further reflect price pressures in the production process for businesses and provide supplementary evidence to judge whether costs continue to be transmitted to consumers.

Whether the Federal Reserve Will Raise Interest Rates in December, CPI Will Provide Key Evidence

The October CPI is highly anticipated, primarily because the Federal Reserve's monetary policy stance is being tested by persistent inflation.

The Federal Reserve maintained the benchmark interest rate at its meeting at the end of October, but some officials have advocated for further tightening of monetary policy. The market currently expects that the Federal Reserve may raise interest rates in December and continue to increase rates in March next year.

Last Thursday, Cleveland Fed President Mester stated that to promptly bring inflation back to the 2% target, the Federal Reserve needs to adopt a restrictive monetary policy stance. She prefers more frequent, smaller adjustments to interest rates to reduce the risk of monetary policy lagging behind the economic situation.

Mester had previously cast a dissenting vote in the Federal Reserve's rate decision last month. She believes that sustained supply shocks may lead businesses and consumers to gradually form stronger inflation expectations, increasing the difficulty for the central bank to stabilize prices.

The latest employment data also presents the Federal Reserve with a more direct policy choice. The U.S. reported an increase of 165,000 non-farm jobs in October last Friday, exceeding all market predictions. The resilient job growth indicates that the economy can still bear higher borrowing costs, which also gives the Federal Reserve space to continue focusing policy on controlling inflation.

If the core CPI in October is significantly below market expectations, investors may lower their judgments on the future magnitude or frequency of interest rate hikes. Conversely, if inflation exceeds expectations again, the market may reassess how long rates will remain high and even raise expectations for a tighter policy path.