NEW YORK — A widening war in the Middle East and Ukrainian strikes on Russian oil facilities have sent crude prices soaring, and a growing body of data shows American households have far less room to spend. Fuel costs are driving overall U.S. inflation sharply higher, leaving consumers paying more without actually buying more. The rising cost-of-living burden is shaping up as a significant liability for President Donald Trump and the Republican Party heading into the midterm elections on Nov. 3.
Excluding gas stations, September retail sales rose just 0.2%; adjusted for prices, spending did not grow
The Commerce Department said on the 15th that retail sales totaled $745 billion last month, up 0.8% from August. That was nearly double the 0.4% increase expected in a Dow Jones survey. Compared with September last year, sales rose 6.3%. The department also revised its earlier estimate of August retail sales growth to 1.3% from 1.1%.
With retail sales up more than 6% from a year earlier, the figures at first glance could be read as evidence that U.S. consumption remains robust. The reality was different. The increase in total September retail sales was driven by gas stations, where sales jumped 6.4% from August. Gasoline and diesel prices climbed to record highs starting last month.
Excluding gas stations, retail sales rose just 0.2% from the previous month. Retail sales data are compiled in nominal terms and do not account for price changes, so even with higher gas station revenue, consumers cannot be assumed to have bought more gasoline if fuel prices rose by more than the increase in sales.
Core retail sales, which better reflect the underlying trend in U.S. consumption, rose 0.1% from August, below the 0.3% market forecast. The core measure excludes food services, autos, building materials and gas stations, and feeds into calculations of gross domestic product. By category, furniture sales rose 1.3%, restaurant and bar sales 1.1%, electronics and appliance sales 0.6% and online sales 0.3%. Clothing and accessory sales were unchanged from August.
The September retail sales figures aligned closely with the details of the same month's consumer price index, released a day earlier by the Bureau of Labor Statistics. The September CPI rose 3.7% from a year earlier and 0.6% from the previous month, exceeding the 3.6% and 0.5% forecasts in a Dow Jones survey. Core CPI, which excludes volatile energy and food, rose 2.6% from a year earlier and 0.3% from August, each 0.1 percentage point above market expectations.
In detail, gasoline — up 34.2% from a year earlier and 9.1% over the month — accounted for more than half of last month's CPI increase and drove the high inflation reading. Fuel oil surged 74.2% from a year earlier and 15.3% from August. Price increases far outpaced the growth in retail sales.
Many items outside the energy category also ran above the Federal Reserve's 2% inflation target. Housing costs rose 3.2% from September last year, while airfares rose 22.4%, urban transportation 9.6%, apparel 3.4%, medical care 2.5%, education 3.8% and communications 3.2% — all meaningful increases in the everyday expenses that low- and middle-income households feel directly.
Gasoline prices jumped 9% in a month, and wholesale prices more than doubled forecasts
The bigger problem is that the rapid pace of price increases does not appear to have ended last month. The BLS said on the 15th that the September producer price index rose 1.3% from the previous month, more than double the 0.6% forecast in a Dow Jones survey. It was the steepest monthly gain in four years and six months, since a 1.7% rise in March 2022. The year-on-year increase reached 6.3%, the highest since December 2022.
Core PPI rose 0.7% from the previous month, far above the 0.3% forecast. From a year earlier, it jumped 5.0%. The PPI, a measure of wholesale prices, is treated as a leading indicator for the CPI because it feeds into final consumer prices after a lag.
Goods prices rose 2.6% from August, the largest gain in 17 years, since the data series began in December 2009. Within goods, energy prices surged 10.8% and accounted for more than 80% of the overall increase in goods prices. Within energy, gasoline prices jumped 20.3%, driving about half of the rise in goods prices. Food prices rose 1.2% and services prices 0.8%. Within services, transportation and warehousing prices rose 3.4% and trade service margins 1.4%.
The breadth of U.S. price increases reflects the cumulative effects of tariffs and higher global crude prices now being passed through to consumers in earnest. Raw material shortages and rising costs tied to the artificial intelligence investment boom are also rippling through industry.
The Fed's October survey of regional economic conditions, the Beige Book, released on the 14th, said prices rose as the effects of higher oil prices appeared in every district, adding that businesses reported higher costs from elevated diesel prices and fuel surcharges being passed along throughout supply chains. Business contacts in several districts also noted continued price pressure from other raw material costs, tariffs and insurance premiums, the report said.
The International Monetary Fund, in its World Economic Outlook released on the 13th, projected global inflation at 4.7% this year and raised the probability of a rate above 5% next year to 35% from 30% in April. The IMF put U.S. inflation at 3.6% this year and 2.8% next year, and projected that core inflation in both the United States and Europe would not fall below 2% until the middle of 2028. As fiscal costs mount and electoral pressure builds, the fund warned, central banks could face demands to accommodate more public borrowing or tolerate inflation above target.
For a read on current conditions, a dialogue at the IMF-World Bank annual meetings in Bangkok between Fed Chair Kevin Warsh and IMF Managing Director Kristalina Georgieva, set for 12:30 p.m. Korean time on the 16th, is worth watching. Warsh and Georgieva are scheduled to discuss how the energy shock is affecting central bank policy and the global economic outlook.
Little chance of near-term oil relief as the Middle East conflict widens, with other living costs also rising; rate and election outlooks both unsettled
Global crude prices, the biggest force pushing up U.S. inflation, still show no sign of settling. Trump has refrained from pressing his campaign against Iran ahead of the midterms, but the center of instability in Middle East oil trade has shifted from the Strait of Hormuz toward the Red Sea. Trump's abrupt agreement with Russian President Vladimir Putin on the 9th to ease sanctions on Russian diesel has so far produced no effect at all.
On the 15th, West Texas Intermediate crude futures for November delivery settled at $97.97 a barrel on the New York Mercantile Exchange, up $2.88, or 3.03%, from the previous session. WTI has risen for six straight sessions since the 8th, reaching its highest level since the 18th of last month. On the ICE Futures Europe exchange in London, Brent crude futures for December fell $0.14, or 0.13%, but at $105.92 a barrel remained above $100.
Iran-aligned Houthi rebels launched another missile attack the same day, targeting the presidential palace in the southern city of Aden, the Yemeni government's interim capital. In a statement, the Houthis said they had struck a war operations headquarters and an arms depot commanded by Saudi Arabian officers inside Aden's al-Maashiq Palace. Yemeni Prime Minister Shaya al-Zindani and cabinet members were unharmed, but five people, including site security personnel and civilian staff, were killed and 16 were injured.
The Saudi-led coalition said the same day that 20 Houthi attacks this month on King Khalid International Airport in the capital, Riyadh, had killed 17 people and injured 333. At Abha airport in southwestern Saudi Arabia near the Yemeni border, three people were killed and 28 injured. Saudi Defense Ministry spokesman Turki al-Malki told a news conference that the Houthis had also attempted attacks on dozens of airports, oil facilities and ports, and called for an immediate halt to attacks on civilians and civilian facilities.
Compounding the pressure, the Energy Information Administration said U.S. crude inventories fell 8.6 million barrels to 415.6 million barrels as of the 9th, a far steeper drawdown than the 288,000-barrel decline analysts had expected.
With high fuel prices persisting and other costs continuing to rise more than 2%, Deutsche Bank on the 15th raised its rating on Walmart, the leading U.S. discount retailer, to buy from hold. Walmart shares gained 1.47% on expectations that more consumers will look to save money.
Elevated price levels are also complicating the outlook for the Fed's policy meeting on the 27th and 28th. According to CME FedWatch, market participants lowered the implied probability of a rate increase this month to 28.2% from 33.2% a day earlier, while raising the odds of an increase by year-end to 92.8% from 90.9%. With AI investment risk in focus pushing bond yields lower, the immediate need for further tightening has eased, but markets see the Fed as having little choice but to raise rates once more at its final meeting of the year on Dec. 8 and 9. San Francisco Fed President Mary Daly told Reuters on the 14th that further rate adjustment was more likely than not, while the timing remained under discussion, adding that she did not feel enough urgency to move rates with limited information and that policymakers needed time.
With the inflation shock intensifying, financial market volatility is likely to widen further for some time. Soaring living costs are also set to be the biggest variable in the fast-approaching midterms. Punishing inflation was a central reason former President Joe Biden's party ceded power back to Trump in the 2024 presidential election.
Trump Stocker is a column delivering on-the-ground reporting and analysis of U.S. markets, companies, policy, politics and diplomacy that may be useful to investors in the era of President Donald Trump. Subscribe to receive updates from the United States.