Prices climbed 0.4% in October as the rising cost of gasoline moderated throughout the month, offering a small reprieve to consumers who have faced intense price pressure for most of the year.
In September, prices had surged by 0.6% from August, indicating that while the pace of inflation, which strips out volatile food and energy costs, increased 0.3% from September for the third consecutive month. Both figures from the Bureau of Labor Statistics exceeded analyst expectations, highlighting the affordability challenges Americans faced as they voted out incumbent Republicans in last week’s midterm elections.
A core inflation reading that surpassed forecasts suggests that soaring energy costs may be bleeding into the broader economy.
Price growth also continues to outpace wage gains, placing further strain on household budgets. Diane Swonk, chief economist at KPMG, described the situation as “the worst bout of inflation relative to wage gains since the 1970s.”
Tuesday’s report lacks year-ago comparisons due to the government shutdown in October 2025, which forced the BLS to cancel that month’s inflation report.
Diesel prices spill over
The slight deceleration in inflation was largely driven by lower gas prices last month, which dropped more than 5% from $4.41 per gallon on Oct. 1 to $4.18 by the end of the month
However, the BLS report indicated that the overall gasoline index still rose 1%, even as the national average for a gallon of unleaded declined. Home heating oil prices climbed 2% from September, and electricity costs rose 0.9%.
Top White House officials acknowledged that the inflation data was concerning and performed worse than anticipated.
“It’s not a good number,” said Chris Phelan, chairman of the White House Council of Economic Advisers.
“I think that’s what we’re seeing is higher gas and diesel prices, due to high oil prices, filtering through the economy,” Phelan told Bloomberg TV.
He also described the inflation situation as a “cloud” over the economy. “I don’t want to say that this is a good number; it’s not.”
Kevin Hassett, director of the National Economic Council, called it “a disappointing report.”
“Right now, the trickle-down from the higher energy prices is definitely very palpable in the data,” he told Fox Business Network.
Earlier Tuesday, AAA data showed that average nationwide gas prices had fallen below $4 per gallon for the first time since July. In early trading, oil prices continued their recent sharp descent. Brent crude oil briefly tumbled below $90 after having been as high as $118 on Oct. 30.
But diesel fuel prices are 70% higher than at the start of the year, a far larger increase than regular gas experienced. Diesel is a major input cost for the transportation industry that delivers goods, such as groceries, to store shelves around the world.
Baby formula and groceries hit hard
Several other major consumer categories also saw significant price hikes over the month. Hospital services, vehicle insurance, dairy, and produce all recorded large month-over-month increases.
The cost of baby food and infant formula saw its largest increase ever in October, rising 5.1%.
Smartphone prices also hit a record 1.4% increase, likely driven by the AI boom. Increased demand for data center memory has prompted numerous consumer electronics firms, such as Apple, to raise prices.
The “food away from home” category, which tracks restaurant and takeout prices, rose 0.5%.
Meanwhile, the “food at home” category, which tracks grocery store prices, saw its largest increase since April.
Economists have repeatedly warned since the U.S. and Israel launched the Iran war in February that the unprecedented surge in diesel fuel prices could easily translate into higher food costs, given that diesel powers the trucks that transport those goods around the world.
“Beyond AI, strong prints in categories like household furnishings, which saw the fastest rise since mid-2025, raises questions about whether tariff passthrough is actually complete and/or second round effects from higher energy costs are beginning to show up,” economists at Deutsche Bank said.
Physicians’ services also jumped a similar amount, as did airfares. The price of new vehicles rose in October, although used car and truck prices fell by a sharp 1.2%.
Just weeks before the holiday season kicks off in earnest, the BLS reported that toy prices rose 1.8% in October.
The interest rate debate
There is a lot riding on this month’s inflation data. Economists had expected overall inflation to rise 0.3% and core inflation to rise 0.2%.
But even before Tuesday’s report, Federal Reserve governor Christopher Waller was significantly raising the stakes for what October’s inflation would mean.
“While I am hoping for an improvement over September, even if this occurs, I would still support a 25 basis-point increase” at the Fed’s Dec. 8-9 interest rate meeting, Waller said in a speech at a central banking conference in London earlier Tuesday.
“Let’s just say it. September’s inflation data were bad. There was no silver lining,” he continued. In September, inflation was on the upswing again and hit 3.7% on a year-over-year basis.
He surprised investors by going a step further, however.
“If inflation comes in substantially higher than I expect, more robust action by the [Fed] may be called for,” he said.
Specifically, if core inflation were to rise by 0.3% or higher, “I believe a 50 basis-point hike in the policy rate should be considered at the December meeting.”
