Inflation sizzled in September -- and Social Security benefits will get a boost

Nights are getting colder, but inflation is heating up.

A report from the Labor Department Wednesday showed consumer prices in September were up 3.7% from a year ago. That's a larger annual increase than the previous month.

A spike in energy prices tied to the U.S. war with Iran drove the cost of living higher. Prices jumped 0.6% between August and September.

"It's not looking good," said economist Brian Bethune of Boston College. "The main problem, of course, that everybody knows is gasoline prices. But also heating oil."

Heating oil is a close cousin of diesel fuel. The cost of the fuel oil has jumped 74% in the last year, which is hard on families in New England who rely on heating oil to stay warm.

Stripping out volatile energy and food prices, what's known as "core inflation" was 2.6% in September. That's also a bigger annual increase than was tallied in August.

The artificial intelligence boom has raised the cost of memory chips, affecting all sorts of consumer electronics. Apple, for example, raised the price of older model iPhones last month by $100 apiece.

Social Security recipients will get a raise

Shortly after the inflation report was released, the Social Security Administration announced that benefits will increase by 3.6% next year. The annual cost of living adjustment is based on prices in July, August and September.

The jump in benefits amounts to an extra $75 a month for the average Social Security recipient.

Advocates for seniors welcomed the increase.

"It helps millions of Americans keep up with rising costs for groceries, routine bills, health care and other everyday expenses," said AARP CEO Myechia Minter-Jordan.

But critics complain that the cost-of-living adjustment doesn't reflect seniors' actual expenses, which often include higher costs for health care.

"It won't be enough for most seniors to even tread water financially," said Max Richtman, president of the National Committee to Preserve Social Security and Medicare.

Treading water would be an improvement for most workers, whose paychecks are not keeping pace with today's rising prices.

Prices are climbing faster than paychecks

Average wages in September rose just 3%, so the typical worker's buying power has eroded over the last year.

"People are kind of saying, 'Something isn't right with that,'" Bethune said. "I'm working harder. I'm more productive. And this is not a square deal."

Inflation is not nearly as high as it was in 2002, following Russia's invasion of Ukraine. But every time prices start to level off, the economy is rattled by a new supply shock, such as President Trump's double-digit tariffs or the war with Iran.

Beth Hammack, who heads the Cleveland Federal Reserve Bank, worries the cumulative effect of these shocks could make inflation more entrenched. Hammack told a group of economists this week about a Cleveland-area retailer she'd heard from who is raising prices not just to cover today's costs but the higher costs that may come in the future.

"This could be a sign that an inflationary mindset is taking hold," Hammack said. "When people expect higher prices, they make decisions with this in mind. It can become a self-fulfilling prophesy that makes it harder for monetary policy to bring inflation back down."

Policymakers at the Federal Reserve will weigh the new inflation data when they meet in two weeks to discuss interest rates. Investors now see about a 50-50 chance the Fed will raise its benchmark rate in October in an effort to combat inflation.