U.S. consumer price growth accelerated to a four-month high in September, exceeding market expectations. Slowing job gains had damped expectations of further interest rate increases by the Federal Reserve, but a continuing inflation shock stemming from the Middle East has revived uncertainty over monetary policy.
The Bureau of Labor Statistics said on the 14th that the consumer price index rose 3.7% in September from a year earlier. That was 0.3 percentage point higher than August's 3.4% increase and above the 3.6% forecast in a Bloomberg survey of economists. It was also the fastest pace since May, when prices rose 4.2%. On a monthly basis, prices gained 0.6%, up from 0.4% in August but in line with the market forecast of 0.6%.
Core CPI, which strips out volatile energy and food prices, rose 2.6% from a year earlier. That was 0.2 percentage point higher than August's 2.4% and above the 2.5% forecast. On a monthly basis, core prices rose 0.3%, exceeding the 0.2% expected.
The increase was driven by a surge in energy prices. Gasoline prices jumped 9.1% from the previous month, accounting for more than half of the overall monthly rise in the CPI.
Price pressures also persisted outside energy. Medical service prices rose 0.3% from the previous month, while used car prices climbed 0.7%, the largest increase since October last year. Joe Lavorgna, chief economist at SMBC Nikko Securities America, said that the stubborn pace of price increases reflects both supply chain disruptions in the Middle East and the rapid buildout of artificial intelligence infrastructure.
The higher-than-expected inflation reading is likely to weigh on the Fed's rate decision. The September CPI is the last consumer price report before the Federal Open Market Committee meets on the 27th and 28th.
The Fed raised interest rates last month for the first time since 2023 in response to price pressures. Fed officials have since said they need to review a range of economic indicators before deciding on further action. The odds of a rate increase this month had fallen further after September job gains came in well below market expectations.
The stronger-than-expected CPI has brought the possibility of additional tightening back into focus. Futures markets priced in roughly a 35% chance of a rate increase in October after the data was released, according to the CME FedWatch tool. That was more than double the 17% probability a week earlier.
Bloomberg said the report suggests inflation will remain a top concern for voters through the final stretch of the midterm elections, and that it supports expectations the Fed will raise rates again within the next few months even if it holds them steady in October.