September brought little relief to the accelerating cost of living as consumer prices rose again and inflation remained well above the Federal Reserve’s target.
The Consumer Price Index, a broad gauge of the cost of goods and services across the U.S. economy, rose a seasonally adjusted 0.6% in the month, bringing the 12-month rate of increase to 3.7%, the Bureau of Labor Statistics said Wednesday. A survey of economists polled by Dow Jones had expected increases of 0.6% and 3.6%, respectively.
Excluding volatile food and energy costs, the so-called core CPI rose 0.3% on a monthly basis and 2.6% on an annual basis, compared with estimates of 0.2% and 2.5%, respectively.
In August, the headline inflation rate was 3.4% annualized and the core inflation rate was 2.4%.
Rising energy costs once again became the main cause of the inflationary situation. The energy index rose 5.2% as tensions between the United States and Iran continue in the war that started in late February and show no signs of ending anytime soon.
Gasoline prices rose 9.1%, accounting for about half of the overall CPI increase, according to the BLS. Over the past year, gas recorded an increase of 34.2% and fuel oil increased by 74.2%.
Food prices were flat month-on-month and rose 2.5% year-on-year. However, shelter prices rose by 0.4%, and used car and truck prices rose by 0.7%.
Stock market futures turned negative following the announcement, but bond yields rose sharply. Futures traders also raised the probability of a rate hike at the next Federal Open Market Committee meeting on Oct. 27-28 to about 44%.
This will be the last CPI reading that FOMC officials will receive before the meeting. On Thursday, the BLS will release September values for the Producer Price Index, a measure of wholesale costs.
Inflation, as measured by the CPI, has been above the Fed’s 2% benchmark since March 2021. This index was on a downward trend in early 2026, but spiked following the attacks launched by the United States and Israel against Iran.
Although the year-on-year trend has slowed over the past few months, we are still well above our target.
In September, Fed officials responded by approving the first interest rate hike in more than three years, approving a quarter-point hike and bringing the benchmark fund rate into its target range of 3.75% to 4%. The market expects the Fed to postpone raising interest rates in October and then raise them again in December.
Supply shocks of the kind that caused the energy surge are generally thought to be temporary, and policymakers often consider them when considering where to set interest rates. But Fed officials worry that the longer the war drags on, the more likely the boom will ripple through the economy and become embedded in consumer and business expectations.
In recent days, many major policymakers have expressed the belief that the Fed is in no hurry to raise rates further. However, most people say they expect the number to increase further this year. Market prices suggest the Fed could raise rates at least two more times in 2027.
Although Fed officials track the CPI and many other indicators, they use the Commerce Department’s Personal Consumption Expenditures Price Index as their primary forecasting and policy-making indicator. PCE figures for September will not be released until the end of this month.
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