Chart of yearly U.S. inflation as measured by the Consumer Price Index, with and without food and energy. (Wikimedia Commons, by QueensanditsCrazy — CC BY-SA)
U.S. inflation accelerated in September, dealing a fresh blow to American households and scrambling expectations for Federal Reserve policy just weeks before the midterm elections.
The Consumer Price Index rose 3.7% from a year earlier, the Labor Department reported Wednesday, up from 3.4% in August and above economists' forecast of 3.6%. Prices climbed 0.6% from August alone. Core inflation, which strips out food and energy, also ran hot: up 2.6% year over year and 0.3% for the month, both above expectations.
Energy did the heaviest damage. Gasoline prices jumped 9.1% in September from the prior month — accounting for more than half of the month's overall price increase — and are up 34% over the past year. Fuel oil has soared 74% year over year. Airfares, which track fuel costs closely, were up 22% from a year ago.
But the report's most worrying feature was how far beyond the pump the pain spread. Used-car prices, apparel, toys, hotel rooms, hospital visits, and recreation all moved higher. "At this point we're at dangerously elevated levels of inflation," said Lindsey Piegza, chief economist at Stifel. Gregory Daco, chief economist at EY-Parthenon, noted that businesses appear increasingly willing to pass higher costs on to shoppers.
Even the AI boom left fingerprints: prices for computers, peripherals, and smart-home devices rose 9.7% from a year earlier, the largest annual jump in data stretching back to 2006, as data-center construction drives up demand for chips and hardware.
For workers, the math keeps getting worse. Average hourly earnings rose 3% over the past year — well short of 3.7% inflation — marking the sixth straight month that price gains outpaced pay. "We're in a world now of inflation at 3.7% and wage gains for the typical American at 3%; that's a big gap," said Heather Long, chief economist at Navy Federal Credit Union.
Markets recoiled. The Nasdaq slid 2.2%, the S&P 500 dropped 1.4%, and the 10-year Treasury yield jumped to 5.3%. Traders raised the odds of a Fed rate increase at its October 28 meeting to roughly 40 to 50 percent, up from about 22% a day earlier, according to the CME FedWatch tool.
The report is the final inflation snapshot before November's midterms, keeping the economy — and the White House's handling of it — at the center of the campaign. With consumer expectations for future inflation also climbing, economists warn the price surge risks becoming entrenched unless the Fed acts.