U.S. inflation remained elevated in October, underscoring the need for the Federal Reserve to raise interest rates again this year.
Overall prices rose 0.4 percent in October after a 0.6 percent jump the month prior, according to the latest Consumer Price Index report released by the Bureau of Labor Statistics on Tuesday. “Core” prices, which strip out volatile food and energy items, edged up 0.3 percent.
The agency on Tuesday did not release year-over-year figures for October after it was unable to collect data during last year’s government shutdown. According to calculations by The New York Times, overall prices were around 4 percent higher compared to the same time last year, up from 3.7 percent in September. Over the same time period, core prices rose about 2.8 percent.
One of the biggest drivers of inflation in October was food. Prices rose 0.5 percent last month and are up about 3 percent since this time last year. That likely reflects the recent surge in energy prices, especially diesel prices, which have exploded costs for farmers.
Energy prices overall rose modestly in October and were up 0.7 percent for the month after a 5.2 percent jump in September. Gasoline prices rose just 1 percent, significantly slower than the 9.1 percent increase seen during the previous period. Electricity prices rose nearly 1 percent.
October’s C.P.I. report was the last before the Fed meets for its final gathering of the year on Dec. 8-9. November’s report comes out the day after the meeting.
Policymakers have broadly signaled that they will raise rates next month as they seek to stamp out price pressures that have pushed inflation further away from their goal. While the Fed closely tracks the C.P.I. report, it officially targets 2 percent inflation, as measured by the Personal Consumption Expenditures price index. That level has been overshot for nearly six years.
Fed officials also keep tabs on the price of services as an indicator of the underlying pace of inflation. Specifically, they have been looking at core services excluding housing, a measure sometimes referred to as “supercore.” Those prices rose 0.4 percent in October, and have risen at an annual rate of nearly 5.5 percent over the past three months.
On Tuesday, Christopher J. Waller, a Fed governor, raised the prospects of a larger-than-usual half-point interest rate increase at the central bank’s next meeting in December if inflation did not show signs of moderating. In remarks delivered at a Bank of England event, Mr. Waller said a typical quarter-point increase would suffice if price pressures improved as expected in October.
But if “core” inflation rose 0.3 percent or more, as October’s data showed, Mr. Waller warned that the central bank risked its credibility by not moving more aggressively and raising rates by half a percentage point. “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take,” he said.
Two-year Treasury yields, which are sensitive to changes in interest rate expectations, shot higher on Tuesday and were up over 0.1 percentage points to 4.67 percent as investors raised wagers that the Fed will have to raise rates more over time to quell inflation.
Ahead of October’s release, most Fed officials appeared comfortable with a gradual approach to raising rates. They lifted borrowing costs by a quarter of a percentage point in September and then voted late last month to hold rates steady at a range of 3.75 percent to 4 percent. That meeting came just days before the midterm elections, although Kevin M. Warsh, the chairman, denied that politics played any role in the internal deliberations.
Whether the Fed will adopt a more aggressive approach depends on whether more officials begin to worry that price pressures are broadening out and that the current policy settings are ill-equipped to rein them in. The labor market remains in solid shape, as October’s report released on Friday showed, affirming that the Fed can focus solely on its inflation problem.
October marked the seventh straight month in which price increases outpaced wage growth on a 12-month basis. Average hourly earnings were up 3.1 percent in October from a year earlier, well below the roughly 4 percent annual inflation pace.
