Investors eagerly await the release of October's Consumer Price Index (CPI) on Tuesday, a crucial data point that will influence the Federal Reserve's upcoming interest rate decision. According to estimates from Bloomberg, the report is expected to reveal a deceleration in headline inflation, with prices rising at a rate of 3.3%, compared to September's annual gain of 3.7%.

The CPI report, set to be unveiled at 8:30 a.m. ET, is also anticipated to show a smaller monthly increase in consumer prices, with October expected to see a 0.1% rise, a slower pace than September's 0.4% surge.

One of the key factors contributing to the smaller gain in headline figures is lower energy costs. Bank of America forecasts a notable 1.8% month-over-month drop in energy prices, primarily driven by a sharp decline in gas prices during October. However, food inflation is expected to continue at a pace of 0.2% month over month.

When analyzing core inflation, which excludes the more volatile costs of food and gas, October is anticipated to display a 4.1% year-over-year increase, matching the annual rise seen in September, according to Bloomberg data. Monthly core prices are also projected to have climbed 0.3%, mirroring September's monthly increase.

Experts suggest that although the subdued increase in headline CPI may be overshadowed, the firm reading in the core CPI indicates slower progress on inflation. Wells Fargo notes that while shelter disinflation likely resumed in October, the steady drag from health insurance is expected to turn into a boost with this month's release. Goods deflation is also believed to have paused.

Looking ahead, Wells Fargo's team expects core CPI to continue rising at a rate of about 3% annually by this time next year. They emphasize that slower inflation in the upcoming months does not necessarily indicate victory in addressing inflation concerns.

Inflation has remained notably higher than the Federal Reserve's 2% target. However, market indicators suggest that investors are largely betting on the Federal Reserve keeping rates unchanged in December. This sentiment is further supported by Federal Reserve Chair Jerome Powell's recent comments, highlighting the need to assess the situation before considering further actions.

As of Monday afternoon, the CME Group data indicates that markets are pricing in an approximately 86% chance of the Federal Reserve maintaining the current interest rates in December. Investors will carefully analyze the CPI report for insights into inflation trends and their potential impact on future monetary policy decisions.