Inflation runs hotter than expected as higher prices extend beyond the gas station

WASHINGTON — US inflation was higher than expected last month as the rising prices that powered sweeping Democratic victories in last week's midterm elections appear likely to pose ongoing challenges for the White House and the Federal Reserve.

The consumer price index rose 0.4 per cent from September to October, the Labor Department said Tuesday (Nov 10), down from 0.6 per cent the previous month. The government did not report a yearly inflation rate because last year's government shutdown meant no data was released for October 2025.

But excluding the volatile food and energy categories, core prices rose 0.3 per cent, the same as the preceding month. Both figures were a tenth of a point higher than forecast, and at an annual rate would be well above the Fed's two per cent target.

The new inflation data heightened concerns that strong consumer and business spending, combined with higher gas prices and supply disruptions stemming from tariffs and global turmoil, are creating increasingly stubborn inflation that could extend beyond temporary spikes in prices at the gas pump. The economy expanded at a 3.4 per cent annual rate in the July-September quarter, mostly driven by consumer spending.

"It's worrisome. There is a sense that inflation is broad, persistent, a little bit everywhere," said Riccardo Trezzi, founder of Underlying Inflation, a consulting firm, and a former Fed economist. "The Fed should be very worried."

Using rough estimates for last October's data, Trezzi calculates that consumer prices rose four per cent in October from a year ago, up from 3.7 per cent in September. Core prices rose 2.8 per cent, he estimates, up from 2.6 per cent.

Americans' struggles with high prices were evident as they ousted Republican majorities from the House and Senate last week. With historic gains in both chambers, Democrats in Congress will soon face the same challenges. President Donald Trump has acknowledged voter anger over the Iran war and gas prices but has shown no sign yet of changing course.

The AP Voter Poll, a survey of 100,000 voters, found about two-thirds blamed Trump's policies for higher costs. About 9 in 10 said the cost of living was a "crucial" or "major" factor in their vote.

Federal Reserve may become more aggressive about raising borrowing costs

The persistence of elevated inflation makes it highly likely that the Fed will raise its key interest rate at its next meeting in December. It kept rates unchanged late last month, after raising them in September. The Fed increases borrowing costs in an effort to cool spending and bring down inflation.

Earlier Tuesday, Fed governor Christopher Waller, an outspoken member of the central bank's rate-setting committee, said that a hike of a half-point next month was possible, double the size of the usual quarter-point increase.

"Economic activity is strong, the labour market is stable, but inflation is too high, well above" the Fed's two per cent goal, Waller said.

Stock prices fell in early trading Tuesday, and Treasury yields rose, on expectations of more persistent inflation and higher rates from the Fed.

Higher gas prices may have begun to spread through economy

Gas prices rose one per cent from September to October, the government said, a stiff increase but still much lower than in previous months. Gas prices have soared more than 37 per cent from a year ago. Still, oil prices have fallen sharply in recent days on hopes that the Iran conflict is fading, and gas costs have declined this month.

Yet there are signs higher energy prices are spreading into other parts of the economy, with air fares, public transportation, and delivery services all jumping in price. Electricity prices rose 0.9 per cent from September to October, the most since April, and grocery prices jumped 0.4 per cent, a painful rise after years of increases.

Beef prices rose 0.9 per cent last month, after jumping nearly 14 per cent in the first half of this year. Restaurant prices rose 0.5 per cent from September to October, the most since January 2024. Rising shipping prices, driven up by more expensive gas, have lifted costs for restaurants and grocery stores, which may be passing them on to consumers.

Inflation has also been worsened by the massive investments flowing into artificial intelligence, which has contributed to higher prices for computer chips, electricity and consumer electronics. Voters swept dozens of candidates into office who had pledged to slow data centre construction.

Computer prices jumped 0.5 per cent last month, the government report showed, after rising nearly 10 per cent in the year ending in September, lifted by more expensive chips. The cost of computers had been retreating for years as semiconductor chips became more efficient. That trend reversed course this year as prices rose sharply.

Prices are rising, and it's not just gasoline

Prices are also rising in some sectors that have little to do with oil and gas or AI. Streaming video services have recently gotten more expensive, with Disney raising prices last month for its ad-supported Disney+ and Hulu streaming bundle to US$12.49 (S$16) a month from US$11.99. The ad-free version rose by US$2.50 to US$21.49.

Prices also increased last month for an Apple TV/Peacock streaming bundle, to US$17.99 from US$14.99 a month.

Small businesses are bracing for a spending pullback by customers.

Chris Butler, CEO of National Tree Company, an artificial tree importer and wholesaler, says most of his customers now spend US$200 or less on a tree. That is a big departure from the pandemic days when many people, flush with cash, were spending US$300 to US$400, he said.

"Inflation continues to persist," he said. "Gas prices continue to be high, so consumers are hurting from a discretionary perspective."

Last year, National Tree was forced to raise prices on its products, sourced in China and Cambodia, between 10 per cent and 15 per cent because of Trump's tariffs, Butler said. Tariffs have come down, but now the firm is grappling with higher diesel costs.

Butler said the company, based in Cranford, N.J., doesn't plan to raise prices again this year given the existing financial stress on customers, who are already spending less on trees.

Outside of inflation, other measures show the economy is largely doing well. The unemployment rate is a low 4.1 per cent and growth is steady. Still, high prices have left most Americans with a dour view of the economy.

"It might not be a recession, but if you're still living paycheck to paycheck and watching gas prices go up, grocery prices go up, your rent costs go up, it's not going to feel like a robust economy," said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

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