A key report on the inflation situation in October will be released on Tuesday. Here’s what to expect

Lower gasoline prices brought some relief to consumers in October, but Federal Reserve officials are increasingly concerned that inflationary pressures elsewhere in the economy are proving harder to contain.

Prices at the pump fell more than 4 percent, according to the Energy Information Administration, providing some respite from a rise that added more than a dollar per gallon over the past year.

However, the consumer price index for the month, which the Bureau of Labor Statistics will release at 8:30 a.m. Tuesday, is expected to show only a slight slowdown.

Separately, Fed officials say they are concerned that inflation, initially pushed higher by President Donald Trump’s tariffs and the war in Iran, is proving more persistent than expected, with price pressures emerging in sectors other than those directly hit by the shocks.

As the central bank becomes increasingly confident about the state of the labor market, concerns about the cost of living are at the heart of the Fed’s concerns.

“We’re heading toward what we historically view as full employment, and the big problem is entirely on the inflation side. We go around, we talk to people all over this district, all we hear about is affordability on the business side, cost,” Chicago Fed President Austan Goolsbee said Monday at an event in his home district. “So we have to accept this failure on the cost and inflation side.”

The CPI for all items is expected to show an increase of 0.3%. Core inflation, which excludes volatile food and energy costs, is expected to rise 0.2%, according to the Dow Jones consensus forecast. Although these two increases would be slower than the respective monthly gains of 0.6% and 0.3% in September, they nevertheless represent new pressures on prices.

There will be no annual figure for October due to the government shutdown a year ago, which prevented the BLS from collecting some data and establishing a full index level. Due to the data problem, there is no comparable figure for the index.

Bank of America, using interpolated benchmark data for last year’s period, estimated annual growth rates at 3.8% for the stock and 2.7% for the core, both 0.1 percentage points higher than September and well above the Fed’s 2% target.

Goolsbee said the current inflation race defies what one might normally expect from supply shocks and tariffs, with the current situation intensified by the development of artificial intelligence-driven hyperscalers.

“That was supposed to be gone now, and now we’re starting to see inflation rising in areas that probably weren’t coming from oil prices and tariffs, like a set of services. Now this thing with building AI data centers is starting, to me, to look more like old-fashioned overheating of demand,” he said.

Massive investments in data centers are creating demand for construction workers, electricity and equipment, which could increase price pressure, even as AI promises long-term productivity gains, he added.

Although the Fed voted in October to maintain its benchmark interest rate, markets are pricing in a greater than 80% chance that the central bank will raise rates by a quarter of a percentage point at its next meeting in December, according to CME FedWatch data.

Goolsbee, who will not vote on the Federal Rate-Setting Committee this year but will in 2027, did not specify which direction he leans for additional rate hikes, although he said current conditions could warrant action.

“The conventional wisdom is: be aggressive from the start, never let the economy overheat, because once it overheats, it’s extremely painful to get rid of that kind of overheating,” he said. “So I think we need to be careful in this space.”

The CPI release comes alongside strong economic growth – 3.4% in the third quarter for gross domestic product and 3.5% for the last three months of the year, according to the Atlanta Fed – and a job market apparently in good shape as well. Nonfarm payrolls rose by a much better-than-expected 165,000 in October, while the unemployment rate fell slightly to 4.1%, although inflation-adjusted wage growth was negative.

This puts the focus on inflation.

Bank of America said it sees tariff impacts fading, but that prices of goods could increase due to demand for AI. In addition, the company is cautious about the prices of “rigid” services as well as pressures from health insurance and automobiles.

The central bank has been hawkish on the Fed’s expectations and believes a December rate hike is also likely as long as there is not an escalation in stock market selling that could deter the central bank.

“This will be the last inflation report before the Fed’s Dec. 8-9 meeting. If our forecasts are correct, we believe they would indeed result in another 25 basis point rise, all else equal,” Stephen Juneau, an economist at BoFA, said in a client note. “In the absence of a decidedly weak 0.1% (month-over-month), we doubt the inflation data will dissuade the Fed from hiking in December. The biggest risk to our decision comes from financial markets.”