U.S. October Core CPI Exceeds Expectations for Third Consecutive Month; Energy, Services, and AI Costs Heighten Rate Hike Pressure
November 12 — U.S. October inflation data released multiple warning signs. Data showed that core CPI rose 0.3% month-on-month, above the market expectation of 0.2%, exceeding expectations for the third consecutive month; headline CPI rose 0.4% month-on-month, also above expectations. The impact of rising energy prices is spreading to food, transportation and other sectors, while services inflation also remains firm, further increasing the difficulty for the Federal Reserve to control inflation.
Specifically, U.S. food prices rose 0.5% month-on-month in October, with grocery prices posting the largest monthly increase since April; urban transportation services prices recorded the largest monthly increase since 2020, and airfare and delivery service prices also rose. In addition, services prices excluding energy and housing rents rose 0.4% month-on-month, and owners' equivalent rent rose 0.3%.
AI investment is bringing new cost pressures. Over the past three months, U.S. computer and peripheral equipment prices rose at an annualized rate of 25%, and electricity prices rose 0.9% month-on-month in October, the largest increase in six months. Morgan Stanley estimates that AI-related factors have contributed about 6 basis points to core CPI so far this year, with the impact still relatively limited for now, but as data center investment expands, related pressures may rise further.
On monetary policy, Chicago Fed President Goolsbee described the latest inflation data as close to disturbing. Fed Governor Waller previously said that if core CPI month-on-month rises by 0.3% or more, the December meeting should consider a 50 basis point rate hike. Goldman Sachs has incorporated another 25 basis point rate hike in March 2027 into its forecast, expecting the federal funds rate target range to rise to 4.25% to 4.50% by then. However, some economists warn that energy price pass-through is lagged, and over-reliance on current data could lead to excessive monetary policy tightening.