- October CPI exceeded forecasts, with headline inflation up 0.4% and core CPI rising 0.3%.
- Markets priced a full 25-basis-point December hike, with 11%–14% odds of a 50-bp move.
- Friday’s PPI forecast is 0.4% headline and 0.3% core, as traders watch core PCE inputs.
October’s hotter-than-expected U.S. inflation report has shifted attention to Friday’s Producer Price Index release, with traders weighing whether wholesale prices could strengthen expectations of a larger Federal Reserve rate increase in December.
The Consumer Price Index rose by 0.4% month over month, above the 0.3% forecast, while core CPI increased by 0.3%, compared with economists’ 0.2% estimate. Markets reacted with higher Treasury yields, losses in stocks and crypto, and renewed focus on Fed officials’ rate comments.
CPI Repricing Reaches Stocks, Bonds and Crypto
The Bureau of Labor Statistics (BLS) said shelter, food and rebounding energy costs contributed to October’s increase. The BLS omitted official 12-month comparisons because data collection gaps followed the October 2025 government shutdown.
After the report, the two-year Treasury yield gained about 18 basis points, while the 10-year yield reached 5%. The Nasdaq Composite fell by 0.7%. The dollar index moved above 102, and EUR/USD approached 1.1170. Bitcoin traded near $73,500 to $74,500 amid risk-off pressure in crypto markets.
Markets fully priced in a 25-basis-point Fed hike in December, while assigning roughly 11% to 14% odds to a 50-basis-point increase. Before the CPI release, Governor Christopher Waller said a half-point move should remain under consideration if core inflation came in around 0.3% or more. Dallas Fed President Lorie Logan also made hawkish remarks, according to the report.
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PPI Forecasts Put Core PCE in Focus
Friday’s October PPI report is expected to show a 0.4% monthly increase in headline producer prices and a 0.3% rise in core PPI. That would mark a drop from September’s 1.3% monthly increase. September’s annual PPI rate stood at 6.3%, compared with consumer inflation of about 3.7%.
Economists are also watching PPI components used to calculate core Personal Consumption Expenditures inflation, including healthcare, financial services, and airfares. Early estimates put 12-month core PCE at 3.3%, up from 3.1%.
The CPI release has left traders focused on whether wholesale inflation will exceed forecasts and affect December rate expectations. A PPI reading above 0.4% could raise focus on the possibility of a 50-basis-point hike, while equity investors are also monitoring whether producer costs will pressure corporate margins.
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Related: GBP Drops Against USD Ahead of US CPI: Is an Inflation Shock Coming?
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