US inflation rises before midterm elections, fuelling rate hike fears

Economists divided on Fed rate hike as inflation creates uncertainty in run-up to US midterm elections in a tense market.

United States consumer prices jumped in September in the final inflation report before the midterm elections, increasing chances of an interest rate hike later this month.

Annual inflation accelerated to 3.7 percent, up from 3.4 percent in August. On a monthly basis, prices rose by 0.6 percent, according to the Consumer Price Index report released by the Labor Department’s Bureau of Labor Statistics (BLS) on Wednesday.

Petrol prices led the surge as tensions between the US and Iran, as well as Russia and Ukraine, weighed on global energy prices. Petrol prices rose 9.1 percent in September, accounting for more than half of the CPI monthly increase, according to the BLS. They were up 34.2 percent from the same time a year ago.

“The directionless war in Iran continues to disrupt global supply chains, driving up the prices of food and fuel,” Kyle Moore, chief economist at The Century Foundation, an economic think tank, said in a statement provided to Al Jazeera.

Petrol prices have continued to climb. The average price for a gallon of petrol is $4.33 ($1.14 per litre), compared with $4.31 a month ago, according to the American Automobile Association (AAA), which tracks daily petrol prices. Diesel prices are higher, at $6.29 per gallon (1.66 per litre), compared with $6.23 a month ago.

In a post on X, Patrick DeHaan, head of petroleum analysis for GasBuddy, said, “2026 has now seen more days with average gas prices over $4/gal than any year before: 158 days.”

Shelter costs also jumped 0.4 percent from the previous month, following a 0.3 percent increase in August. Food costs were a bright spot in the report, remaining unchanged overall.

Food away from home, including restaurant meals, rose 0.2 percent, but that increase was offset by a 0.1 percent decline in food-at-home prices, which track grocery costs.

At the grocery store, poultry prices jumped 0.7 percent, fruit and vegetable prices rose 0.5 percent, and juice prices increased 1.1 percent. However, milk prices dropped 2.1 percent and beef prices fell 0.9 percent.

Amid heavy investment in AI infrastructure, prices for computer software and accessories have jumped 28 percent from the same time last year.

“The AI boom is playing a huge part, and we have all read about the hundreds of billions being poured into data centers, AI firms, and models,” Rami Cassis, principal of Parabellum Investment, said in comments provided to Al Jazeera.

Fed pressures

The inflation data comes days before the US Federal Reserve’s interest rate decision later this month. Last month, the US central bank raised rates by 25 basis points, bringing the target range to 3.75–4.00 percent, the first hike in three years.

Economists are divided over whether the Fed will raise rates again or hold them steady. According to CME FedWatch, which tracks the likelihood of monetary policy decisions, there is a 52.9 percent chance that rates will remain in the 3.75–4.00 percent range, while a 47.1 percent chance of a quarter of a percentage point hike that would bring them to 4.00–4.25 percent.

The inflation data puts pressure on Republicans before the midterm elections on November 3. A recent Reuters/Ipsos poll showed that about 78 percent of Americans blamed US President Donald Trump’s policies for price increases.

US markets trended downward following the inflation report. The Nasdaq fell 0.8 percent and the S&P 500 dropped 0.6 percent, while the Dow Jones Industrial Average was roughly flat in midday trading.