U.S. inflation rose 2.6% in October, a month after the Federal Reserve began cutting rates.

U.S. inflation rose 2.6% on an annual basis last month, up slightly from September, when the Federal Reserve began cutting interest rates amid signs of cooling prices and a weakening of the labor market.

That matches predictions from economists surveyed by FactSet that the consumer price index rose 2.6% in October. The CPI rose 2.4% in September, when the Fed ushered in a massive 0.5 percentage point rate cut, followed by a second rate cut this month.

The slight month-over-month increase indicates that the Fed's fight to bring inflation back to its 2% annual rate target could take a bumpy road in the coming months. Certain types of goods and services, from housing to insurance products, continue to experience significantly higher prices, straining consumer budgets and creating economic hardship.

“For the next six months, we expect consumers and businesses to continue spending, but more cautiously, amid continued high costs and tariffs,” noted Gregory Daco, EY chief economist, in a research note dated November 11.

One of the main drivers of last month's rise in inflation was the housing market, with house prices rising 0.4% in October, contributing around half of the monthly rise, it was reported on Wednesday the Bureau of Labor Statistics. Transportation costs have also increased due to rising airfares and a 14 percent annual increase in auto insurance, the report said.

Despite the monthly rise in prices, the Federal Reserve is expected to cut rates for the third time this year at its December meeting, with two-thirds of economists surveyed by FactSet forecasting a cut of 0.25 percentage points. The latest CPI report is unlikely to derail that trend, given that inflation numbers were in line with expectations, noted Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management in an email.

“Strong underlying inflation leaves the Fed on track to cut rates in December,” Rosner wrote. “After a run of unusually warm fall data, today's numbers ease fears of an imminent slowdown in the pace of rate cuts.”

Trump's policies and inflation

This inflation report is the first since the November 5 election, which gave former President Donald Trump another victory. But the president-elect's economic policies, which include sweeping tariffs on all imports and the expulsion of millions of undocumented immigrants, could prove inflationary, economists say.

Trump's plans could raise the inflation rate by up to a percentage point, bringing it to an annual rate of about 3.6% – above the Fed's 2% target – some have predicted Wall Street experts.

If that happens, the Fed would likely slow the pace of its rate cuts to combat continued high inflation, experts note.

“Nevertheless, with elevated uncertainty over fiscal and trade policies, there is a risk that the Fed may choose to slow the pace of its easing measures as the cold weather of the new year sets in,” Rosner added. .

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Aimee Picchi

Aimee Picchi is an associate editor at CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and wrote for national media outlets including USA Today and Consumer Reports.

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