Gas Up 37% in a Year as October Inflation Beats Forecasts; Fed Expected to Hike in December

Gasoline is up 37.4% over the past 12 months. It jumped 1% in October alone.

That is one piece of a hotter-than-expected inflation report released Tuesday by the Bureau of Labor Statistics, as reported by the New York Post. The Consumer Price Index rose 0.4% in October. Economists had expected 0.3%. September's monthly pace was 0.6%, so prices cooled a little, just not by as much as hoped.

The government did not release a 12-month inflation rate. The Post reports that the shutdown last fall halted data collection.

What got more expensive

The Post ties the rise in energy costs to the Strait of Hormuz crisis, which it says has blocked crucial shipments. That shows up at the pump, and it shows up in the home. Fuel oil, which heats homes, posted one of the biggest monthly increases just as winter arrives.

Food rose 0.5% in the month. The Post says rising diesel costs likely bled into farmers' costs, since tractors and other equipment typically run on the fuel. It adds that El Niño weather has slammed crops.

Airfares are up about 27.8% over the year. The Post notes that fuel accounts for the bulk of airlines' operating costs. Toys rose about 1% in October, a tariff-sensitive category and a sore spot for holiday shoppers. Shelter rose 0.3%.

Used cars and trucks were a rare bright spot. They fell 1.2% in the month and 3.3% over the year.

Core inflation, which strips out food and energy, rose 0.3%. That matched August and September and beat the 0.2% forecast.

Paychecks are losing ground

Here is the number that hits the kitchen table. Average weekly earnings were flat in October after adjusting for inflation, according to a New York Times estimate cited by the Post. It is the seventh straight month that prices have outrun wage gains.

The Wall Street Journal calculates that prices have risen at about a 5.7% annualized pace over the past three months. The Federal Reserve's goal is 2%.

The Fed's next move

Traders now put better than 98% odds on a quarter-point hike at the Fed's Dec. 9 meeting, according to CME FedWatch. That would lift rates to the 4% to 4.25% range. The decision is not final.

Fed Governor Christopher Waller said in London, hours before the report, that he leans toward a quarter-point increase. He said that if the data moved him, it would be toward a bigger hike, not a pause. If core inflation ran at 0.3% or more, he said, the Fed should consider a half-point move. October's core reading hit that mark.

October's jobs data gave the Fed more room to act. Hiring was surprisingly strong and unemployment fell.

Chris Zaccarelli of Northlight Asset Management said the question is now whether the Fed follows December with another hike in January, which he said would have been unexpected before Tuesday. Or, he said, it could "take their time and raise rates slowly next year."

Stocks slipped in early trading. The Dow was down about 160 points, or 0.3%, and the 30-year Treasury yield rose to 5.352%.

National Economic Council Director Kevin Hassett called the report disappointing in an appearance on Fox Business. The Post says President Trump had not yet reacted.