US inflation accelerated last month as petrol, clothing and airfares became more expensive, adding pressure on households just a few weeks before the midterm elections.
The consumer price index rose 3.7% in September compared with a year earlier, the US Department of Labor said on Wednesday, up from 3.4% in August. On a monthly basis, prices jumped 0.6%, up from 0.4% the previous month.
The annual figure was above the 3.6% forecast by economists surveyed by data provider FactSet.
The figures underscore the lingering impact of the Iran war on petrol prices and the persistence of inflation, which fell sharply from a 9.1% peak in 2022 but has risen since the war began in late February.
Excluding the volatile food and energy categories, core prices rose 2.6% from a year earlier, up from 2.4% in August. Monthly core inflation held at 0.3%.
“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.
Elevated inflation has posed political problems for Republicans in Congress and complicated the Federal Reserve’s efforts to bring price rises under control.
A poll by The Associated Press-NORC Center for Public Affairs Research found that just 17% of US adults approve of President Donald Trump’s handling of the cost of living. Only 26% approve of his handling of the economy overall, a new low.
Will the Fed raise rates again?
Federal Reserve officials are watching inflation data closely to determine whether they need to raise interest rates further, and by how much.
Fed chair Kevin Warsh said last month that inflation was not falling quickly enough towards 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 last month. 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 wait before increasing rates again. Most Wall Street investors expect it to hold rates at its next meeting on 27–28 October, with another rise possible in December. Fed officials have pencilled in just one more rate rise this year.
By raising borrowing costs, the Fed hopes to slow spending and growth and cool price increases. Yet much of the current inflation comes from supply shocks, such as the Iran war’s disruption to oil and gas supplies, 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.
Higher fuel costs feed through to other prices
Warsh has said his goal is to keep the petrol price spike from spreading to other areas of the economy. 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, driving much of the overall increase in inflation.
Prices at the pump have eased in recent weeks, though they remain higher than a month ago. Petrol averaged $4.34 a gallon nationwide on Tuesday, up a few cents from a month earlier.
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.
The expansion of artificial intelligence infrastructure has also sharply increased the cost of semiconductors, computer equipment and electrical components, feeding through to prices for consumer electronics such as gaming devices, laptops and smartphones.