US inflation ran hotter than expected in October, and services are the reason

What happened

US consumer prices rose 0.4% in October from September, seasonally adjusted, the Bureau of Labor Statistics reported on 10 November. Economists had expected 0.3%. In September prices had risen 0.6%. Core prices, which leave out food and energy because they swing the most, rose 0.3%, against a forecast of 0.2%.

As we explained before the release (our preview), the report carried no headline annual rate, because prices were never collected in October 2025 during a government shutdown. The BLS published a few 12-month changes where it could: gasoline was 37.4% dearer than a year earlier, new vehicles 0.7% dearer and used cars 3.3% cheaper.

Where the pressure came from

• Energy rose 0.7%, far less than September's 5.2% jump. Gasoline rose 1.0% after seasonal adjustment, though pump prices actually fell 0.7% before adjustment.
• Food rose 0.5%: 0.4% for groceries and 0.5% for meals out. Transport and packaging costs pushed up by fuel feed into food prices with a lag.
• Shelter, the biggest item in the index, rose 0.3%.

Why the Fed cares about core, not the headline

A jump in fuel prices raises inflation once and then drops out of the figures after a year. What central banks fear is the second round: firms passing higher costs on to everything else, and workers asking for higher pay to keep up. Core prices are where that shows. A 0.3% monthly rise, if it continued, adds up to about 3.7% a year, far above the Fed's 2% target. Our mechanic on inflation and rates explains the chain, and the 1970s oil shocks show what happens when that second round takes hold.

Where it sits in the chain

This is Link 1, inflation and policy rates: the oil shock reached fuel first, and is now showing up in food and services, which is what moves central banks.

What to watch

• Producer prices and retail sales for October, due later this month.
• The November jobs report, the last big release before the Fed's 8–9 December meeting.
• Whether Fed officials talk about a half-point rise (our story on the market reaction).