U.S. consumer prices climbed 3.7 percent annually in September, exceeding expectations as surging energy costs and gasoline prices drove a hotter inflation report just weeks before the November 3 midterm elections, according to data released Wednesday by the Bureau of Labor Statistics.
Inflation accelerated from August’s 3.4 percent pace, pushing consumer price growth to its highest level since the spring. The hotter-than-expected data caught financial markets by surprise and immediately altered expectations for the Federal Reserve’s upcoming policy decisions.
The latest government data release marks the final inflation report before the midterm elections, arriving amid polls showing widespread public dissatisfaction with the Trump administration over the cost of living. A Reuters/Ipsos poll showed about 78 percent of Americans blamed President Donald Trump’s policies, including tariffs on imports and the Middle East conflict, for rising prices outpacing wages. A poll by The Associated Press-NORC Center for Public Affairs Research found that just 17 percent of U.S. adults approve of Trump’s handling of the cost of living.
Core CPI printed at +0.33% in September, about a tenth of a point higher than most forecasters had anticipated.The 3-month annualized rate rose to 3.4% from 2% in August.
Gasoline Prices and Energy Costs Drive the September CPI Spike
Energy expenses fueled the bulk of September’s broad-based acceleration. Energy prices rose 5.2 percent on a monthly basis and are up 20.4 percent over the past year. A total of $133 billion for all U.S. consumers.
Gasoline prices jumped 9.1 percent in September alone, marking a 34.2 percent surge over 12 months. According to the Bureau of Labor Statistics, that single category accounted for over half of the monthly increase in the headline consumer price index. Average gas prices remain over a dollar per gallon more than last year, according to data from AAA, with petrol averaging $4.34 a gallon nationwide.
The energy squeeze traces back to the ongoing US-Israel war with Iran, which constricted global crude supplies. Crude oil surged from just over $70 a barrel before the conflict to over $100 a barrel.
Fuel oil, used in home heating, was up 74.2 percent over the year, presenting a difficult challenge for families in New England who rely on heating oil to stay warm. At the same time, diesel costs—which power domestic supply chains—reached record highs, pulling up prices across multiple consumer categories. Airline fares jumped about 22.4 percent from a year ago as higher jet fuel costs filtered through the transportation sector.
Shit’s too expensive, and Donald Trump and his allies don’t have a plan to get some relief for working people. They won’t even take responsibility for it. https://t.co/Oy5tJ934iw
Core Inflation and Broader Price Pressures Beyond Energy
While energy dominated headline figures, underlying price pressures proved sticky. Core CPI, which strips out volatile food and energy costs, rose 0.3 percent in September, pushing the annual core rate to 2.6 percent. Economists surveyed by data provider FactSet had anticipated a 3.6 percent annual rate, while actual headline inflation reached 3.7 percent.
Economists surveyed ahead of the report had anticipated softer readings. Instead, increases extended across recreation, used cars and trucks, education, medical care, apparel, hotel rooms, hospital visits, nursing home care, rental cars, tuition, sporting events, and intra-city transportation. Grocery prices ticked down 0.1 percent from August as a silver lining in the report, though economists expect sharply higher diesel costs could push up food costs.
Price changes over last year (September CPI report)Fuel Oil: +74.0%Gasoline: +34.2%Gas Utilities: +5.0%Electricity: +4.4%Overall CPI: +3.7%Food away from home: +3.5%Apparel: +3.4%Shelter: +3.2%Transportation: +2.7%Medical Care: +2.5%Food at home: +1.8%New Cars: +0.6%…
Artificial intelligence infrastructure demands also added upward pressure on consumer electronics. Goldman Sachs estimated in a report that the AI buildout has added about a half-percentage point to the annual inflation rate based on the Fed’s preferred inflation gauge.
Against that backdrop, average hourly wages rose just 3 percent over the past year, marking the lowest year-over-year wage gain since 2021. That left inflation outpacing wage growth for the sixth straight month, eroding household buying power.
“Ordinary Americans are losing purchasing power every month, even if the core inflation measure that strips out volatile food and fuel prices remains under control.”
Nic Puckrin, markets expert and former Goldman Sachs analyst via Business Insider
Federal Reserve Rate Hike Odds Surge Following the CPI Release
Financial markets reacted swiftly to the inflation report. Major U.S. stock indices turned negative, Treasury yields spiked, and the 10-year Treasury yield jumped eight basis points to 5.3 percent. Gold fell more than 1.7 percent to $4,105.50 an ounce, while silver dropped more than 4 percent to $56.91 an ounce.
Traders recalibrated their expectations for monetary policy ahead of the central bank’s upcoming meeting scheduled for October 27 and 28. CME Group’s FedWatch Tool showed that the probability of an interest rate hike rose to roughly 47 percent, up sharply from about 22 percent before the data release.
Unlike the upside surprise in August, where you could identify larger idiosyncratic increases, the miss on core CPI in September was more broadly based.Core goods printed at +0.25%, the largest monthly gain in a year, and shelter was +0.39%.Core services excluding housing was… pic.twitter.com/Xbgd7iTZGb
The Federal Reserve previously raised its benchmark rate by 25 basis points in September to a range of 3.75 percent to 4.00 percent, marking its first rate increase in three years. Federal Reserve Chair Kevin Warsh stated at a news conference last month that inflation was not falling quickly enough towards its target, emphasizing that the plain fact is inflation is too high and has been for too long.
Social Security Benefits Adjustment and Political Stakes Before Midterms
The inflation data landed just weeks before the November 3 midterm elections, keeping economic anxiety at the forefront for voters. Recent polls indicate widespread public dissatisfaction with the administration’s handling of the cost of living.
Shortly after the inflation figures were published, the Social Security Administration announced that benefits will increase by 3.6 percent next year based on consumer price readings from July, August, and September.
While senior advocates welcomed the relief for routine bills and healthcare expenses, critics argued the adjustment falls short of actual expenses faced by older Americans.
“It won’t be enough for most seniors to even tread water financially.”
Max Richtman, president of the National Committee to Preserve Social Security and Medicare via NPR
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