Inflation in the United States picked up again in September, with the consumer price index rising 3.7% from a year earlier, according to data released Wednesday by the Department of Labor. The increase, driven by higher petrol prices, clothing costs, and airfares, adds fresh strain on American households just weeks before the midterm elections.
The monthly figure jumped 0.6%, up from 0.4% in August, and the annual rate came in above the 3.6% that economists surveyed by FactSet had forecast. Core inflation, which strips out volatile food and energy categories, rose 2.6% year-on-year, up from 2.4% in August, while monthly core inflation held steady at 0.3%.
The persistence of price pressures reflects, in part, the knock-on effects of the conflict in the Middle East, which has disrupted oil and gas supplies and pushed up fuel costs. Although inflation had fallen sharply from its 9.1% peak in 2022, it has crept higher since the war began in late February.
“CPI came in at 3.7%, slightly above expectations, and similarly core inflation was above predictions, suggesting that prices are feeding into the wider economy,” said Richard Carter, head of fixed interest research at Quilter Cheviot.
Political and economic fallout
The elevated inflation numbers pose a political headache for the Republican leadership in Congress and complicate the Federal Reserve’s efforts to bring price growth under control. A recent poll by The Associated Press-NORC Center for Public Affairs Research found that only 17% of US adults approve of President Donald Trump’s handling of the cost of living, and just 26% approve of his overall economic management—a new low.
Federal Reserve officials are closely monitoring the data to decide whether further interest rate increases are needed. Fed chair Kevin Warsh said last month that inflation was not falling fast enough toward the central bank’s 2% target, prompting the Fed to raise rates for the first time in three years, to about 3.9%.
“The plain fact is that inflation is too high and has been for too long,” Warsh said at a news conference. Inflation reports over the summer “do not tell me that underlying trends have meaningfully improved,” he added.
Yet some key Fed officials have suggested the central bank can afford to wait before hiking again. Most Wall Street investors expect rates to be held at the next meeting on 27–28 October, with another rise possible in December. Fed officials have penciled in just one more rate increase this year.
By raising borrowing costs, the Fed hopes to cool spending and growth, thereby easing price pressures. However, much of the current inflation stems from supply shocks—such as the disruption to oil and gas supplies from the Iran war—which higher interest rates cannot resolve.
The yield on the benchmark 10-year US Treasury bond rose to around 5.3% after Wednesday’s inflation release, up about eight basis points on the day. Carter warned that persistent inflation could push US government borrowing costs higher. “It is not inconceivable that ten-year Treasury yields continue to march higher,” he said.
Fuel costs ripple through the economy
Warsh has said his goal is to prevent the petrol price spike from spreading to other sectors. Higher fuel costs have already helped push airfares up by about 23% from a year ago. Petrol prices jumped about 9% from August to September, accounting for much of the overall increase in inflation.
Prices at the pump have eased slightly in recent weeks, though they remain higher than a month ago. Nationwide, petrol averaged $4.34 a gallon on Tuesday, a few cents above the previous month.
Higher fuel prices also raise shipping costs for businesses, some of which pass those costs on to consumers. Last week, PepsiCo said it would raise prices for some snacks and soft drinks to offset higher costs for fuel, aluminium, and food ingredients.
For European readers, the US inflation picture is a reminder of how interconnected global energy markets are. As the IEA has warned, diesel prices in Europe may also climb as the global supply crunch persists. Meanwhile, reported attacks in the Strait of Hormuz have stoked supply fears, adding to uncertainty on both sides of the Atlantic.
The Fed’s next move will be watched closely not only in Washington but also in Frankfurt and London, as central banks worldwide grapple with similar inflationary pressures. The outcome of the midterms could also shape US fiscal policy, with potential implications for global markets.
