Inflation slows to 0.4% in October as gasoline prices fall

Bureau of Labor Statistics data showed that October inflation slowed to 0.4% month over month, the smallest increase in three months. The previous monthly increase was 0.6%. The slowdown brought consumers some relief after high prices throughout most of the year, but overall prices continued rising. Core inflation, a measure excluding food and energy, increased 0.3% from September. Economists had forecast a 0.3% increase in overall inflation. Economists had expected core inflation to increase 0.2%.

Tuesday's release provided no comparisons with a year earlier because the October 2025 government shutdown forced the Bureau of Labor Statistics to cancel that month's inflation report. Falling gasoline prices accounted for much of the October slowdown. Gasoline fell more than 5%, from $4.41 per gallon on October 1 to $4.18 at month's end. AAA data released earlier Tuesday showed gasoline below $4 per gallon for the first time since July.

Oil prices extended a recent sharp decline in early trading. Brent briefly traded below $90, compared with a level as high as $118 on October 30. However, diesel prices remain 70% above the level at the beginning of the year, a much larger increase than gasoline. Diesel represents a major cost for transportation businesses delivering groceries and other goods to stores worldwide.

Federal Reserve governor Christopher Waller discussed October inflation before Tuesday's data release, during a central banking conference in London. Waller said even an improvement from September would leave Waller supporting a 25 basis point increase at the December 8-9 interest rate meeting. Waller described September's inflation results as bad, with no positive aspect. September's annual inflation rate had accelerated to 3.7%.

Waller said inflation substantially above Waller's expectations could require stronger action from the Federal Open Market Committee. Waller said a core inflation increase of 0.3% or more should lead policymakers to consider a 50 basis point increase in December. Waller's suggestion of stronger action surprised investors. Waller argued that raising rates by only 25 basis points would endanger the Fed's credibility. The Fed has not raised rates by 0.50% since 2022. The Fed generally prefers successive increases of 0.25% to assess the effects of higher rates. Inflation has remained above the Fed's 2% target since early 2021.