Forecasts for the October Consumer Price Index report show that inflation was likely to remain flat on a monthly basis in October, reflecting a lull in good news on price pressures in the economy.

Analysts said lower gasoline prices during the month continued to reduce inflation across the board, but price increases elsewhere offset some of that progress.

Investors are watching the data with renewed attention after last week’s presidential election, given anticipated Republican policy proposals that economists believe could exacerbate inflationary pressures. In recent weeks, bond traders have pushed bond yields higher, in part because of concerns about the long-term inflation outlook.

Overall, economists anticipate that consumer prices rose 0.2 percent on a monthly basis, according to FactSet consensus estimates. That would mean the annual rate of inflation rose to 2.6% in October from 2.4% in September. They expect core inflation, which excludes volatile food and energy prices, to rise 0.3%, which would mean annual core inflation would hold steady at 3.3%.

“Labor-intensive categories as well as shelters remain problematic,” says José Torres, senior economist at Interactive Brokers, who points to rising prices in the transportation and medical services categories. He expects prices to rise 0.2 percent in October, in line with consensus. His annual inflation forecast of 2.5% is slightly lower than consensus.

Analysts also point to a rise in used car prices in October, which will put more upward pressure on core inflation. “In short, inflation is moving sideways after a period of substantial disinflation,” Bank of America economists wrote in a note to clients on Monday.

Highlights of the October CPI report

• CPI report release date and time: Wednesday, November 13 at 8:30 am EST
• The CPI is expected to rise 0.2% in October after rising by the same amount in September.
• Core CPI is forecast to rise 0.3% in October after rising by the same amount in September.
• The year-on-year CPI is expected to rise 2.6% in October after rising 2.4% in September.
• The year-on-year core CPI is expected to rise 3.3% in October after rising by the same amount in September.

In addition to transportation and medical costs, Torres expects food and restaurant prices to rise in October, along with electricity and natural gas prices. Analysts at Goldman Sachs also point to the rising costs of car insurance.

Inflation is falling but progress will be ‘burdened and gradual’

Overall, inflation is lower than a year ago (annual inflation in November 2023 was above 3%), and analysts expect disinflation to continue in the coming months, albeit at a slower pace.

“We still see the overall inflation trend in a downward channel,” said Kathy Bostjancic, chief economist at Nationwide, whose forecast is in line with consensus estimates. She says the key to further disinflation will be a reduction in rent inflation, which has remained relatively sticky and is relatively heavily weighted in the index. She adds that future progress on disinflation in general will be “burdened and gradual”.

Bank of America analysts point out that subdued wage growth and a rebalancing of the labor market means medium-term drivers of service inflation remain favorable.

Inflation risks up

Market watchers spent much of last week digesting new risks to inflation following the US presidential election. “While we believe inflation remains on a disinflationary path, we now see risks clearly tilted to the upside,” Bank of America economists wrote. “These risks stem from potential policy changes rather than economic fundamentals. Indeed, we see pro-growth fiscal policy, tariffs and tighter immigration as potential sources of upside risk to inflation in the coming years, if they are implemented.”

Over the past year, headline inflation has eased, despite resilience in the services category. Torres says tariffs could derail that progress by putting pressure on prices in goods or commodity categories.

What’s next for the Fed?

With some components of inflation still higher than the Fed’s 2 percent target and amid expectations of strong economic growth next year, analysts and investors are scaling back their forecasts for a rate cut. Bond futures markets now see a roughly one-in-three chance the Fed will leave interest rates steady at next month’s December meeting, according to CME’s FedWatch tool. That’s up from a 15% chance a month ago.

“While we see the Fed continuing to cut interest rates in December, it’s not a slam dunk,” says Bostjancic. It cut its forecast for 2025 from five cuts of 0.25% to three, for a total cut of 0.75%. “The economic momentum we’re seeing now in 2025 is stronger than we anticipated,” she says, “and that mitigates some of the downside risks to the economy and the labor market.”