October saw lower gasoline prices in the United States, offering temporary relief for household consumption expenditures. Nevertheless, Federal Reserve officials remain alert, as inflation stickiness across other segments of the economy has exceeded expectations. The U.S. Bureau of Labor Statistics will release the October CPI report at 21:30 Beijing Time on Tuesday. This inflation print will directly inform whether the Federal Reserve will deliver another rate hike in December.

1. Modest Oil‑Price Pullback, Only Moderate Inflation Cool‑Down Anticipated
Data from the U.S. Energy Information Administration shows retail gasoline prices fell more than 4% in October, reversing a prior one‑year rally of over $1 per gallon and easing household energy costs for the time being. Market consensus, however, does not expect a material cooling in inflation in the upcoming CPI release.

Dow Jones consensus forecasts point to a 0.3% month‑on‑month rise in headline October CPI and a 0.2% month‑on‑month increase in core CPI excluding food and energy. While these readings mark a deceleration from September’s 0.6% headline gain and 0.3% core gain, underlying price pressures remain present.

Due to past government‑shutdown‑related gaps in data collection, the Bureau of Labor Statistics will not publish official year‑over‑year figures for October CPI. Market estimates derived from interpolation models place headline CPI at roughly 3.8% year‑on‑year and core CPI at 2.7% year‑on‑year. Both estimated readings sit above September’s levels and are well above the Federal Reserve’s 2% inflation target.

2. Shifting Inflation Dynamics; AI Infrastructure Creates Fresh Demand‑Side Pressures
Inflation drivers have evolved. Price pressures are no longer solely short‑term supply shocks stemming from tariffs or Middle‑East geopolitics. Large‑scale capital investment in AI computing infrastructure has boosted demand for construction labour, power and equipment, generating demand‑driven inflation. Although AI may lift aggregate productivity over the long run, near‑term capital spending expansion continues to exert upward pressure on prices. Fed officials have flagged this new source of inflation risk in public communications.

3. Resilient Economy and Labour Market; December Hike Probability Tops 80% in Market Pricing
U.S. real GDP expanded by 3.4% in Q3, and the Atlanta Fed model projects Q4 growth to hold at 3.5%. This comes alongside October non‑farm payrolls of 165 000 new jobs and a falling unemployment rate of 4.1%, signalling overall labour‑market robustness, even as inflation‑adjusted real wages remain negative. Per the CME FedWatch Tool, market‑implied odds for a 25‑basis‑point Fed rate hike in December have risen above 80%.

Chicago Fed President Austan Goolsbee does not hold a voting seat on the FOMC this year and will regain voting rights in 2027. His public remarks reflect a prevailing policy‑making view: proactive monetary tightening is warranted amid economic overheating to prevent overheating from becoming entrenched, which would raise the eventual cost of bringing inflation back under control.

4. October CPI as Key Pre‑FOMC Inflation Input; Fundamentals Back Tightening Bias
The October CPI report represents the final major inflation release ahead of the Federal Reserve’s December 8‑9 policy meeting. Market scenario analysis suggests that barring sharp equity‑market sell‑offs that trigger drastic financial‑condition tightening, a December rate hike would be highly likely unless month‑on‑month CPI prints weaken sharply to just 0.1%.

While the direct price impact from tariffs is fading, multiple factors — AI‑fueled goods demand, sticky service‑sector pricing, healthcare and automobile costs — continue to act as inflation headwinds. Broadly speaking, solid economic fundamentals create the backdrop for additional tightening. Severe financial‑market stress would be required to materially alter the Fed’s tightening trajectory.

Lower gasoline prices constitute only a partial, temporary reprieve. Demand‑side pressures from AI‑related capital outlays risk prolonging the inflation‑cooling cycle. Economic and labour‑market data remain robust, and markets have substantially priced in a December rate increase. The upcoming October CPI release will serve as the critical benchmark for assessing the Federal Reserve’s next policy moves.