US inflation heats up in September; Fed rate hike this month back on table
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)
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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 Labor 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 last mile back to target could remain bumpy and keep interest rates elevated,” said Jeffrey Roach, chief economist at LPL Financial. “The report complicates the Fed’s decision this month, as the road back to price stability is looking increasingly difficult to navigate.”
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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.
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. Diesel prices have vaulted to 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 nonalcoholic beverages surged 0.9 per cent, while fruits and vegetables cost 0.5 per cent more.
In the 12 months through September, the CPI advanced 3.7 per cent after rising 3.4 per cent in August.
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 27-28 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.
Source: Reuters/fs
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