US consumer inflation accelerated in September as a surge in gasoline prices and firmer underlying price pressures added to the cost-of-living burden for American households ahead of the November 3 midterm elections.The consumer price index (CPI) rose 3.7 per cent year-on-year in September, up from 3.4 per cent in August, the US Labor Department said on Wednesday. On a monthly basis, consumer prices increased 0.6 per cent, compared with a 0.4 per cent rise in the previous month.The annual inflation rate was slightly above economists’ expectations of 3.6 per cent, according to a Reuters poll, while the monthly increase was in line with forecasts.The latest figures reflect the impact of higher energy costs following the US-Israeli war with Iran, which began in late February and disrupted oil and gas supplies. Rising costs have added to concerns over affordability, a key issue ahead of the midterm elections, in which President Donald Trump’s Republican Party is seeking to retain control of Congress.
Gasoline prices drive inflation
Gasoline prices were a major contributor to the monthly increase in consumer prices, rising sharply in September. US Energy Information Administration data showed gasoline prices climbed 7.1 per cent during the month, while the Labor Department’s CPI report recorded a 9.1 per cent increase.Higher fuel costs have also pushed up expenses across other sectors, including transportation and travel. Airfares rose 1.2 per cent in September and were up around 22 per cent from a year earlier, while hotel prices increased 2 per cent over the month.Rising fuel and transportation expenses have also increased costs for businesses, raising the risk that companies will pass some of the additional burden on to consumers through higher prices for goods and services.Grocery prices offered some relief, declining 0.1 per cent in September, although they remained 1.8 per cent higher than a year earlier.
Core inflation also picks up
Underlying price pressures remained firm even after excluding volatile food and energy components. Core CPI rose 2.6 per cent in September from a year earlier, compared with 2.4 per cent in August.On a monthly basis, core inflation increased 0.3 per cent, matching the previous month’s rise. Price increases across a range of goods and services suggest that inflationary pressures extend beyond the energy sector.Economists have also pointed to strong investment in artificial intelligence infrastructure and data centres as a factor pushing up the cost of semiconductors, computer equipment and electronic devices.“The report was worse than expected,” Bill Adams, chief US economist at Fifth Third Bank, said in a note to clients, adding that price increases were widespread across durable goods, nondurable goods and services.
What it means for Federal Reserve
The inflation data could complicate the Federal Reserve’s decisions on interest rates as policymakers weigh persistent price pressures against the impact of tighter monetary policy on economic growth.The Fed raised its benchmark interest rate by 25 basis points last month to a range of 3.75 per cent to 4 per cent, marking its first rate increase in three years. It has indicated that further increases could follow if inflation remains elevated.Financial markets had assigned a roughly 22 per cent probability of another rate increase at the Fed’s October 27-28 meeting before the September CPI report, according to CME Group’s FedWatch Tool.However, some economists expect policymakers to hold rates steady at the upcoming meeting and assess further economic data before deciding on another increase. Higher borrowing costs can help moderate demand and slow price increases, but they cannot directly address supply disruptions caused by geopolitical conflicts.The latest inflation figures come as the cost of living remains a major concern for American voters ahead of the November 3 midterm elections.The September inflation report is also important for millions of Americans receiving Social Security benefits. The annual cost-of-living adjustment for 2027 is based on inflation data for urban wage earners and clerical workers during the third quarter of 2026 compared with the corresponding period a year earlier.The Senior Citizens League has projected a 3.5 per cent increase in Social Security benefits for 2027, up from the 2.8 per cent adjustment for 2026. The Social Security Administration is expected to announce the official adjustment later on Wednesday.