Kiplinger Inflation Outlook: Core Inflation Stays Elevated in October
Falling gasoline prices will bring down November’s reported inflation, but nonenergy inflation will remain above target.
Kiplinger Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Monthly inflation remained above target in October for the third consecutive month, rising 0.35% from September, or a 4.3% pace if sustained for a year. Food prices rose a higher-than-normal 0.45%, while energy prices rose 0.7%, their third increase in a row. However, because food and energy prices tend to be volatile, emphasis is generally given to the “core” rate, which excludes them. The core rose 0.3%, or a 3.6% annual rate for the third consecutive month. Another troubling sign was that services prices excluding shelter and energy rose 0.4%. Because price trends in services are more difficult to change than in goods, this also indicated that inflation momentum is still elevated. These readings signaled investors that progress on reducing inflation is not being made, and so the 10-year Treasury note’s yield ticked up to 5.0%, and stocks declined for the day.
The largest component in the index is shelter, whose costs rose 0.3%, the usual increase. Used-car prices provided a bit of good news, declining 1.2% after three months of increases. Toy prices continued their upward momentum, rising 1.8% after September’s 4.2% increase. Other categories showing above-average price gains were hospitals (up 0.8%), recreation commodities (0.7%), recreation services (0.9%) and restaurants (0.5%).
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Expect overall inflation to end the year at a still-high 3.9% annual rate, despite a decline in gasoline prices in November, and for the core inflation rate to hit 2.9%. Because inflation at year-end 2025 was modest, the comparison with this year will be unfavorable, so these 12-month percentage changes will begin to come down early next year. The headline inflation rate will drop to 1% or less 12 months after the Iran war started and drove up gasoline costs, but the core inflation rate will stay around 2.5%, which is still above the Federal Reserve’s target of 2% or a bit less.
As a result, expect the Fed to raise interest rates at its December 9 policy meeting, and perhaps again at its January 27 meeting. The measure of inflation that the Fed watches more than the Consumer Price Index is the Personal Consumer Expenditures index excluding food and energy, which edged up to 3.1% for September (October data will be released on November 25). The Fed wants core PCE inflation at 2%. It was already well above that benchmark before the Iran war caused energy prices to spike.
Related content
