Inflation Again! Your Growth Stocks Are in for More Tough Times
US inflation in October came in higher than the market expected, driven by gasoline and electricity - two items Fed rates can't reach. And yet a rate hike is in the works. Who stands to benefit, and who will pay?
Key points
US inflation surprised to the upside in October, and in a single day the market rewrote its bets on the Fed's December meeting.
Gasoline is up 37.4% year over year, but the US doesn't officially have an overall year-over-year inflation figure this month at all.
Fed Governor Waller described an item that adds $20 to $30 to the price of a barrel and has nothing to do with interest rates.
The head of the Chicago Fed compared data-center construction to an old-fashioned demand boom for electricians.
The ECB is holding rates at 2.5% with inflation at 3.8%, while the Fed is preparing the opposite - the same shock, two conflicting diagnoses.
The number the market overlooked on Tuesday
At first glance, nothing dramatic. US consumer prices rose 0.4% in October from the previous month, while economists expected 0.3%. Core inflation, excluding food and energy, added 0.3% - the same pace for the third month in a row, equivalent to roughly 3.5 to 4% annually.
What's interesting is what's rising beneath the surface. Energy added 0.7% in October after a 5.2% jump in September. Electricity got 0.9% more expensive in a single month. Gasoline is up 37.4% year over year - one of the few year-over-year figures statisticians could calculate at all, because last year's government shutdown left them without October 2025 data. So the US has no official overall year-over-year inflation figure this month.
The market reacted quickly: the Nasdaq closed down 0.74%, the 10-year US Treasury yield climbed to 5.00%, and the 2-year yield jumped 17 basis points. Rate futures fully priced in a 25-basis-point December hike after the data came out, and assigned about a 14% probability to a 50-basis-point hike - just that morning, it was practically zero.
And that's where the problem starts for anyone with growth stocks in their portfolio. The items driving inflation today have very little to do with interest rates. Higher rates won't make a barrel of oil cheaper or build a power plant. The Fed is nevertheless preparing another round of making money more expensive.