Truflation: US Monthly Inflation Report – October 2025

Executive Summary

As a result of the longest U.S. government shutdown, much of the economic data typically released by government agencies has been delayed or even cancelled, deepening the uncertainty faced by the Federal Reserve, economists, and investors alike.  The lack of official reports that normally guide policymakers on inflation and labor market trends has intensified the debate over whether another rate cut will be necessary at the Federal Reserve’s December meeting.

While central bankers had access to September Consumer Price Index (CPI) before their last meeting, they lacked the updated jobs report.  Even if the government reopens in the coming weeks and data releases resume, policy makers will still be relaying on retrospective surveys and delayed statistics, if those figures are published at all.

Exhibit 1 – Estimated Release Dates for Key US Economic Data

Source: BNP Paribas, Oct 28 report. Note: October employment report may be joined with November, if the shutdown continues. October CPI likely to be skipped all together given that they will have limited data.

Based on private enterprise data, the U.S. economy is sending mixed signals. Recent estimates from the Atlanta Fed’s GDPNow model show strong GDP growth, with an annualized forecast of 4.0% for the third quarter of 2025; an improvement from the second quarter’s 3.8% growth. However, the absence of crucial September retail sales data adds uncertainty to this outlook. Meanwhile, the federal government shutdown is fuelling economic anxiety and clouding prospects for the fourth quarter.

The labor market continues to show signs of softening, with job gains remaining subdued and below expectations. The unemployment rate has stayed relatively stable, with the Chicago Fed forecasting 4.3%. Data from the Morning Consult Job Labor Tracker indicates a gradual upward trend in unemployment since early September, though the market remains largely in neutral territory.

A notable contradiction lies in the continued strength of corporate profit margins, which show little sign of compression. This suggests there is no immediate pressure for widespread cost-cutting, and that the current weakness reflects policy uncertainty combined with a structural shift in the labor market.

The upcoming Federal Reserve meeting in December will be a delicate balancing act. Inflation remains elevated and shows few signs of easing, while the labor market weakens and the broader economy demonstrates resilience. Given the lack of fresh official data, the Fed may find itself making policy decisions with limited visibility, potentially giving policymakers further reason to hold rates steady in December.

Labor Market Stagnating amid Structural Strains

There are currently no signs of a steep downturn in the labor market that would suggest an imminent recession. Gauging the health of the labor market in October has been challenging, not only because of the government shutdown but also due to job cuts implemented earlier in the year by DOGE. Employees who accepted the DOGE buyouts were finally removed from federal payrolls last month, likely contributing to a larger-than-usual pullback in net nonfarm payrolls.

The unemployment rate, which stood at 4.3% in August, appears to have remained relatively stable, reflecting no significant weakening in the labor market. The concern, however, is that when cooling does occur, it may happen quite rapidly, a shift we have yet to see.

Truflation’s newly launched nonfarm payroll metric indicates that nonfarm payrolls increased by 62,355 jobs last month. According to ADP, private payrolls grew by 42,000 jobs. Together, these data suggest that October’s figures reversed recent declines.

Exhibit 2 – Truflation Monthly change to Nonfarm Payroll

Signs of resilience in the labor market are particularly important now, as federal government jobs, once a growth driver, are likely to remain a drag on overall payroll growth. This points to a market that has cooled but not broken.

Still, there are reasons for caution. Three separate measures of job cuts, MacroEdge Total Job Cuts, Challenger Layoffs, and Revelio’s Number of Employees Laid Off. all show the same trend: layoffs are rising.

Exhibit 3 – Monthly Layoff from October 2023 to October 2025

Source: MacroEgde, Revelio Labs & Challenger Grey & Christmas

It’s worth noting that some level of layoffs and churn is normal even in tight labor conditions. However, the upward trend warrants attention. That said, it may not translate into a sharp increase in unemployment, since layoffs are often implemented gradually, and many firms may ultimately reduce fewer workers than initially planned or continue hiring in other areas simultaneously.

The federal government offers another perspective. According to NPR’s latest analysis, more than 150,000 individuals accepted the “Fork in the Road” buyout offer as agencies sought to cut costs and boost efficiency. Yet, many of these workers are now being rehired as agencies struggle to maintain basic operations and execute key policy priorities.

Meanwhile, the U.S. economy has recorded multiple consecutive quarters of strong corporate earnings growth, suggesting that healthy business fundamentals could help prevent a significant wave of layoffs.

Finally, data from the Bank of America Institute, which tracks employment through paycheck deposit activity, shows that the broader employment picture remains stable. Job growth held steady, and the number of households receiving unemployment payments declined slightly from September; evidence that job losses have not accelerated.

Household Debt – Americans are falling deeper into debt

Household debt rose by another $197 billion in the third quarter, driven primarily by mortgages, according to the Federal Reserve Bank of New York. Yet it’s credit card balances that stand out as a more troubling indicator. Balances climbed by $24 billion to reach $1.23 trillion, a 5.75% increase from a year earlier; marking a new all-time high.

Exhibit 4 – Total Debt Balance by Composition

Source: Federal Reserve of New York, Household Debt Report 

The average credit card balance per consumer now stands at $6,523, up 2.2% year over year, according to TransUnion’s Credit Industry Insights Report. Beneath that aggregate increase lies a widening gap between consumers: some demonstrate growing financial resilience, while others face mounting strain.

Out of roughly 175 million consumers with credit cards, about 60% carry revolving debt, meaning they don’t pay off their balances each month. These borrowers face an average interest cost of about 20% annually, making credit cards among the most expensive forms of borrowing.

Exhibit 5 – Percent of Balances 90+ Days Delinquent by Loan Type

Source: Federal Reserve of New York, Household Debt Report

Credit risk is also becoming increasingly polarized. TransUnion reports more borrowers now fall into either the superprime (credit score 780+) or subprime (below 600) categories, signalling a divergence in consumer financial health. FICO data similarly shows a growing concentration of consumers at both ends of the credit spectrum.

This polarization mirrors the broader “K-shaped” economy: while some households are strengthening their financial footing, buoyed by gains in the stock market, others are slipping further behind. The top 10% of Americans now hold over 87% of all corporate equities and mutual fund shares, underscoring the unequal distribution of wealth.

At the lower end, financial stress is spreading. Thirty-eight percent of consumers report finding it “difficult” or “very difficult” to pay bills on time, according to a survey by Achieve, a debt management firm. Among those struggling, 67% cite insufficient income as the primary cause. The recent federal government shutdown has compounded challenges for low-income families by disrupting essential programs such as SNAP food benefits.

The combination of rising debt, lingering inflation, elevated interest rates, and federal disruptions poses risks of a lasting economic impact, particularly for vulnerable households. Many Americans, despite steady employment, find their purchasing power stagnating. To make ends meet, they are increasingly borrowing to supplement income, only to face high interest payments that further strain their finances.

Inflation Update – A little relief this month

The Bureau of Labor Statistics (BLS) was scheduled to release the October Consumer Price Index (CPI) on Thursday, November 13, but the ongoing federal government shutdown has delayed the report, if we are lucky,  as they have halted in-person data collection. As a result, it’s becoming increasingly likely that the BLS will forgo publishing the October CPI entirely. The longer the shutdown persists, the greater the risk that the November report may also be skipped, leaving policymakers and markets without official inflation readings for two consecutive months.

In the absence of official data, Truflation who uses real-time pricing data is providing an alternative gauge of price movements. According to its latest update, Truflation projects a 2.9% year-over-year increase in the BLS CPI for October, down slightly from 3.0% in September and broadly consistent with market expectations (ranging from 2.9% to 3.1%).

The modest decline reflects shifts in consumer spending patterns, particularly within the goods categories, alongside a notable drop in energy prices. Goods inflation has been trending lower as households adapt to higher prices, partly the result of tariff-related cost pressures, by cutting back or switching to lower-cost alternatives.

Exhibit 6 – Truflation Key Inflationary Metrics: Goods vs Services vs Core

Meanwhile, gas prices, has played a key role in shaping overall inflation trends, contributing to the decline in headline inflation. Core CPI, which excludes food and energy, has remained relatively steady, supported by a still-resilient labor market. Wage growth continues to exert upward pressure on services costs, offsetting some of the disinflation seen in goods.

The services sector continued to expand in October, with the ISM Services PMI rising to 52.4, surpassing forecasts and marking another month of growth this year. The uptick was driven by accelerating new orders and robust business activity. However, the survey also revealed that the prices index reached a record high, underscoring persistent cost pressures, while employment weakened amid ongoing concerns surrounding tariffs.

In contrast, the manufacturing sector remained in contraction. The ISM Manufacturing PMI slipped to 48.7 in October from 49.1 in September, erasing the modest gains seen the prior month and extending a period of subdued factory activity. Although new orders showed a slight improvement, they remain historically weak, and both production and employment continued to decline.

Manufacturers continue to grapple with trade uncertainties and tariff-related disruptions, which are weighing on demand and extending supplier delivery times. The data highlight an increasingly divergent economy—one in which services activity is holding up despite elevated costs, while manufacturing struggles under the weight of global headwinds and policy uncertainty.

Exhibit 7 – Truflation Category Inflation Drivers

The most significant upward contributors to inflation in October came from apparel, utilities, and education, while food, transportation, and household durables exerted downward pressure on overall prices. This mix reflects shifting consumer behavior and ongoing supply-side influences from tariffs and energy demand.

The steady increase in inflation aligns closely with Truflation’s earlier forecasts, which anticipated moderate but persistent upward momentum through the end of the year. Tariff effects are expected to continue driving prices higher in the fourth quarter, particularly as businesses begin to rebuild inventories depleted earlier in the year.

Utilities and imported goods remain under notable cost pressure. In particular, energy demand—driven in part by the rapid expansion of AI and data centers, is fuelling higher utility prices. This trend may continue to filter into both producer and consumer prices in the coming months, posing an ongoing challenge for inflation moderation despite the broader cooling in goods categories.

Sector-Specific Inflation Drivers

• Food: -0.5% MoM I +2.8% YoY.  The moderation in food inflation reflects a combination of factors, including lower energy costs, the stabilization of supply chains, cooling labor market conditions, and shifting consumer spending habits amid heightened economic uncertainty. However, price movements remain uneven across food categories. Items such as beef which has seen price increases due to disease outbreaks and tariff effects.

• Transportation: -0.3% MoM I +2.0% YoY.  This category shows mixed trends. Vehicle prices rose +0.6% MoM and +6.1% YoY, driven by ongoing chip shortages, supply chain disruptions, higher production costs, and tariffs on imported vehicles. Conversely, gasoline prices fell -3.6% MoM and -5.7% YoY, reflecting higher global and domestic oil production, lower crude oil prices, seasonal declines in demand, and the transition to cheaper winter fuel blends. Additionally, easing geopolitical tensions helped keep oil prices subdued.

• Household Durables: -0.6% MoM I +3.2% YoY.  Prices for household durables declined as consumer demand softened, supply chains normalized, and retailers increased promotions and discounts to clear excess inventory. The category appears to be undergoing a market correction, where ample supply meets subdued demand, creating downward pressure on prices.

• Apparel: +1.2% MoM I +0.1% YoY.  Apparel prices surged due to higher tariffs, rising raw material and labor costs, and ongoing supply chain disruptions. Businesses, after absorbing these costs for some time, are now passing higher expenses to consumers. The recent elimination of the “de minimis” import exemption in August further amplified import costs. Rising cotton has also contributed to the upward trend.

• Utilities: +1.1% MoM I +5.2% YoY.  Utilities experienced broad-based price growth, led by a surge in natural gas prices. The increase stems from record LNG exports driven by strong global demand, colder weather boosting domestic heating needs, and supply constraints caused by extreme weather and production challenges. The U.S.’s continued reliance on natural gas for electricity generation has compounded these upward pressures.

• Education: +0.5% MoM | +2.2% YoY.  Education costs rose as state funding cuts forced many public universities to raise tuition. Additional contributors include higher administrative expenses, infrastructure investments, increased faculty compensation, and growing demand for student support services, such as mental health programs.

Inflation Outlook: Short to Medium Term

Despite a marginal respite in inflation this month, driven largely by the sharp decline in gasoline prices, the overall inflationary environment remains elevated. Price pressures are expected to persist at a low-grade fever level, fuelled by tariff impacts but partially mitigated by easing housing inflation, and a sluggish global economy.

Looking ahead, the tariff effects are likely to be amplified by a weakening U.S. dollar, labor supply constraints, and the lingering effects of fiscal stimulus in the first half of 2026. Another round of fiscal support ahead of the midterm elections could extend these inflationary pressures further into next year.

In a still-growing economy, this persistent inflation may persuade the Federal Reserve to maintain interest rates near current levels. While rates are not restrictive by historical standards, the political pressure to ease policy remains high. Market expectations currently favor a 25-basis-point rate cut in December, though such a move is unlikely to materially boost economic growth or inflation. Instead, it could inflate home and asset prices and temporarily lower government borrowing costs.

At the household level, consumer expectations reflect cautious optimism on inflation but growing unease about the job market. According to the Federal Reserve Bank of New York’s October Survey of Consumer Expectations, households anticipate inflation at 3.2% a year from now, down from 3.4% in September, signalling improved inflation outlooks. However, respondents expressed greater concern about employment conditions, predicting a higher unemployment rate and greater difficulty finding work if laid off, even as fears of job loss declined modestly compared to the prior month.

The survey also indicated increasing pessimism about both current and future financial conditions. Expectations for income and earnings growth were mixed in October, with optimism fading slightly.

Exhibit 8 – Consumer Inflation Expectations (2% is the Fed Target)

Source: Federal Reserve Bank of New York & University of Michigan

Meanwhile, consumer confidence edged lower in October, following a brief rebound in September. Respondents were more pessimistic about future job availability and business conditions, and slightly less optimistic about future income prospects. Inflation and prices remain the dominant concern shaping consumer perceptions of the economy, while political uncertainty, heightened by the ongoing federal government shutdown, has further dampened sentiment.

Conclusion: “Inflation will rise further before it cools”

Upward inflationary risks is expected to persist for the fourth quarter, driven by inventory restocking at higher costs, ongoing tariff uncertainty, energy-related price pressures, and fiscal-driven demand stemming from the OBBBA. The central question now is how resilient U.S. consumers remain in sustaining growth without reigniting a broader inflation spiral. The underlying data suggests the Federal Reserve will remain cautious. With inflation still above target and increasing, policymakers have limited scope for rate cuts unless there is a decisive downward shift in the labor market and clearer evidence of price stability.

About Truflation

Truflation provides a set of independent inflation indexes drawing on 30+ data partners/sources and more than 15 million product prices across the US. These indexes are released daily, making it one of the most up-to-date and comprehensive inflation measurement tools in the world. Truflation has been leveraging this measurement tool to predict the BLS CPI number, with a 99.94% accuracy in predicting inflation in the last 12 months.

APPENDIX A

Truflation Category Percentage Change Data
Month-over-Month and Year-over-Year
All Data is based on October 2025

Truflation US Inflation Update - September 2025

Report Presentation Deck

TF 2025 - Inflation Report - US - M10 - Presentation.pptx.pdf

2 MB

About Truflation

Truflation provides a set of independent inflation indexes drawing on 50+ data partners/sources and more than 20 million product prices across the US. These indexes are released daily, making it one of the most up-to-date and comprehensive inflation measurement tools in the world. Truflation has been leveraging this measurement tool to predict the BLS CPI number, with a 99.94% accuracy in predicting inflation in the last 18 months.