U.S. inflation picked up in September as soaring energy prices added to already stubborn price pressures, the Labor Department said on Wednesday.
Why it matters: The latest Consumer Price Index shows that the inflation fight is far from over — and makes further Federal Reserve interest rate hikes more likely as Americans struggle with higher costs.
By the numbers: CPI rose 0.6% in September from the prior month, with the annual inflation rate at 3.7%, the government said.
- That compares with a 0.4% monthly increase and a 3.4% annual rate in August.
- Core prices, which exclude volatile food and energy costs, gained 0.3% on the month, compared with a similar monthly gain in August. In the 12 months through September, core CPI rose 2.6%, up from 2.4% the prior month.
Zoom in: The latest figures capture the toll of the Middle East war on American consumers as disruptions to global energy supplies push up fuel prices.
- Gasoline prices spiked 9.1% in September after climbing 3.9% in August, when they accounted for more than a third of the monthly increase in consumer prices.
- Prices for shelter, one of the largest components of the index, increased 0.4%, compared with a 0.3% gain in August.
- Food prices were flat, compared with a slight 0.1% increase the previous month.
Zoom out: The surge in fuel prices has prompted extraordinary measures from the Trump administration, particularly as soaring diesel costs threaten to push up prices for goods transported across the country.
- President Trump temporarily eased restrictions on tax-exempt diesel and lifted some U.S. sanctions on Russian fuel to boost global diesel supplies.
- Airline fares surged 1.2% in September — bringing the annual increase to 22% — as higher jet fuel costs put pressure on ticket prices.
What to watch: The Social Security Administration is set to announce the 2027 cost-of-living adjustment for millions of retirees, based on inflation figures released on Wednesday.
- The increase will take effect in January.
The big picture: The report comes as Federal Reserve officials weigh how soon to raise interest rates again, with policymakers divided over the persistence of inflation.
- In a speech on Monday, Cleveland Fed president Beth Hammack warned that inflation pressures extend well beyond energy — citing tariffs, AI investment and rising services prices.
- Fed governor Christopher Waller told Bloomberg on Tuesday that higher Treasury yields are already helping restrain economic activity, possibly reducing the urgency of another rate hike this month.
- New York Fed president John Williams said one more increase might be ahead this year, though he cautioned the central bank might not have to raise again in 2027.
The bottom line: In the wake of the inflation report, financial markets are now betting that an interest rate increase is more likely when the Fed meets later this month.
- Odds of October rate hike jumped to 44% from 22% Tuesday, according to CME FedWatch data.
- The yield on the two-year Treasury note — the security most reactive to Fed policy expectations — jumped 12 basis points, while the 10-year Treasury yield rose 7 basis points.
Editor's note: This story has been updated with additional details.