US inflation heats up in September; Fed rate hike this month back on table
US inflation rose to 3.7 per cent in September, driven by higher gasoline prices, increasing pressure on households and complicating the Federal Reserve’s decision on interest rates.
A motorist fills up his tank at a gas station amid a fuel shortage in Denpasar, Bali, Indonesia, Wednesday, Oct 14, 2026. (Photo: AP/Firdia Lisnawati)
WASHINGTON: US consumer prices accelerated in September as the cost of gasoline surged, dealing another blow to US President Donald Trump and his Republican Party ahead of the Nov 3 midterm elections and putting an interest rate increase later this month back on the radar.
The Consumer Price Index report from the Labour Department on Wednesday (Oct 14) showed a broadening of price pressures beyond energy, raising concerns among economists that underlying inflation could be getting sticky. Financial markets now see the Federal Reserve's interest rate decision this month as a closer call than before the data was released.
The report added to surveys this month that showed a further deterioration in consumer sentiment and a plunge in Trump's approval rating, driven by angst over the rising cost of living. A Reuters/Ipsos poll showed about 78 per cent of Americans blamed Trump's policies, including tariffs on imports and the Middle East conflict, for rising prices, which are outpacing wages.
"The inflation we're experiencing right now is largely the result of erratic policy from the executive branch," said Kyle Moore, chief economist at the Century Foundation, a progressive think tank.
"Worse still, the directionless war in Iran continues to disrupt global supply chains. This administration has also been wholly unwilling to moderate the pace of the AI and data-centre buildout."
The CPI rose 0.6 per cent last month after climbing 0.4 per cent in August, the Labour Department's Bureau of Labour Statistics said. The increase in the CPI was in line with economists' expectations.
In the 12 months through September, the CPI advanced 3.7 per cent after rising 3.4 per cent in August.
A 9.1 per cent surge in gasoline prices accounted for more than half of the increase in the CPI over the month. The US-Israeli war with Iran is driving up energy prices. Other motor fuels, which include diesel, soared 11.9 per cent last month and were up 60.9 per cent on a year-over-year basis. Diesel prices at the pump are at record highs, and there are fears that those costs will soon feed through to higher prices at the supermarket.
Food prices were unchanged after gaining 0.1 per cent in both July and August. Grocery store prices dipped 0.1 per cent over the month, but rose 1.8 per cent on a year-over-year basis. Beef prices dropped 1.0 per cent in September and the cost of dairy and related products eased 0.9 per cent. But prices for non-alcoholic beverages surged 0.9 per cent, while fruits and vegetables cost 0.5 per cent more.
CORE INFLATION ABOVE EXPECTATIONS
Excluding the volatile food and energy components, the CPI gained 0.3 per cent in September, matching the gain in August. Economists polled by Reuters had forecast the so-called core CPI would rise 0.2 per cent. The core CPI was lifted by a 0.4 per cent increase in the cost of shelter, including hotel and motel rooms. Owners' equivalent rent rose 0.3 per cent.
There were increases in the costs of recreation and education. Prices for used cars and trucks increased 0.7 per cent, while airline fares rose 1.2 per cent amid higher jet fuel prices. Apparel prices climbed 0.3 per cent.
In the 12 months through September, core CPI inflation increased 2.6 per cent after advancing 2.4 per cent in August. The US central bank tracks the Personal Consumption Expenditures Price Index for its 2 per cent inflation target.
The core CPI measure is lagging core PCE inflation, which increased 3.0 per cent in August, because of the different weights assigned to the components in the baskets.
Financial markets raised the chances of a rate hike at the Fed's Oct 27 to 28 policy meeting to roughly 52 per cent from about 22 per cent prior to the CPI report, CME Group's FedWatch Tool showed. The odds of a rate increase this month had diminished following underwhelming payroll gains in September as well as cooler-than-expected PCE inflation readings for July and August.
US Treasury yields were mostly higher while the dollar advanced versus a basket of currencies. US stocks opened lower.
The Fed in September raised its overnight benchmark interest rate by 25 basis points to the 3.75 per cent-4.00 per cent range, its first hike in three years, and flagged further increases in borrowing costs in the months ahead. Economists had expected the Fed to raise rates in December.
The September CPI inflation report was keenly awaited by millions of retirees and other Social Security recipients trying to figure out how much their benefits will increase next year.
The Social Security Administration announced a 3.6 per cent cost-of-living adjustment for Social Security and Supplemental Security Income benefits for 2027. The programmes benefit older Americans who have retired as well as the disabled and certain widows, widowers and children.
