US consumer prices rose 0.4% in October, more than economists had forecast, extending a run of firm inflation readings into a third month and unsettling financial markets.
The increase was broad enough to keep the annual rate well above the Federal Reserve's 2% target. After the release, the 10-year Treasury yield climbed back to 5%, and futures markets began pricing a higher chance that the central bank raises rates again at its December meeting, possibly by more than the usual quarter point.
What drove the increase
Shelter costs remained the largest single contributor, with rents and owners' equivalent rent staying sticky. Food prices rose again, and services excluding energy continued to climb faster than goods. Energy was the main offset: gasoline prices fell below $4 a gallon for the first time since July, and diesel futures dropped to their lowest level since August.
Retail sales rose in the same period, a sign that households are still spending despite higher borrowing costs. Economists said that combination — steady demand plus persistent price growth — is what makes the Fed's decision difficult.
Markets and the Fed
Stocks were mixed after the report. Technology shares remained under pressure from a separate selloff tied to Nvidia, whose chief executive is under investigation over an affair with a woman alleged to be a Chinese government agent. The chipmaker has lost hundreds of billions of dollars in market value over two sessions.
Fed officials have said they are watching services inflation and the labor market. October payrolls showed slower hiring, which normally argues for holding rates steady, but the inflation data argues the opposite. Governor Christopher Waller's recent comments were read by traders as leaving the door open to a larger move.
Political fallout
The numbers land two weeks after midterm elections in which the cost of living was a central issue. Democrats won control of both chambers, and Republicans are debating how much the inflation record hurt them. The White House has pointed to falling gas prices as evidence that relief is arriving, while Democrats say wages have not kept up with housing and food costs.