Hotter US inflation puts a December rate hike on the table

The October inflation report was the one number markets were waiting for this week, and it came in warm. US consumer prices rose 0.4% in the month against forecasts of 0.3%. The core measure, which strips out food and energy, rose 0.3% against 0.2% expected.

Why the report was odd

There is no annual inflation rate this month. The Bureau of Labor Statistics didn't collect October 2025 prices during last year's government shutdown, so it has nothing to compare against. September's annual rate was 3.7%. Investors were left reading the monthly figures, and the monthly core figure has now been 0.3% three months running.

What it means for rates

Before the report, futures markets put better than 80% odds on a quarter-point rate rise at the Federal Reserve's 8 to 9 December meeting, according to CME FedWatch. Fed Governor Christopher Waller had said a core reading of around 0.3% or higher would justify considering a half-point move. He got it. The two-year Treasury yield, the bond most sensitive to Fed expectations, rose to 4.69% from 4.55%.

How markets took it

Toronto took it worst. The S&P/TSX composite fell 275.81 points, about 0.8%, to 36,170.45, dragged by mining and materials stocks as gold dropped US$84.30 to US$4,030.20 an ounce and oil slipped to US$86.04 a barrel. The S&P 500 lost 29.01 points to 7,520.93 and the Nasdaq fell 187.26 points. The Canadian dollar weakened to 70.52 US cents.

The gold move makes sense once you see it. Higher US rates make a metal that pays no interest less attractive, and a stronger US dollar makes it more expensive for everyone else. When gold falls, the TSX feels it more than most markets, because so much of the index is miners.

What we're watching

The November inflation report lands on 10 December, the day after the Fed decides. So the Fed will move without it, and the market will find out within 24 hours whether it guessed right. Until then, we'd expect rate-sensitive sectors and gold miners to stay jumpy.