US Inflation Accelerates to 3.7% in September, Exceeding Forecasts as Gasoline Prices Jump

Key Facts

US inflation accelerated to 3.7% year on year in September, exceeding economists' forecasts, in a reading accompanied by stock market losses and higher short-term Treasury yields. The annual increase in consumer prices exceeded August's 3.4%, according to the Associated Press, rising above both the previous month's level and market estimates. Economists had expected headline inflation to reach 3.6% in September, below the actual reading reported by the agency. On a seasonally adjusted monthly basis, the Consumer Price Index rose 0.6%, according to the US Bureau of Labor Statistics release for the same month. The monthly increase in August was 0.4%, meaning the acceleration in annual inflation was accompanied by a faster pace of month-to-month price increases.

Gasoline led the monthly price increase, with its index jumping 9.1% in September, according to the Bureau of Labor Statistics, making it the leading contributor identified in the release behind the rise in the overall index. The bureau said gasoline accounted for "more than half" of the monthly increase in the Consumer Price Index, highlighting the scale of fuel's impact on the September reading. The broader energy index rose 5.2% during the month, alongside the jump in gasoline prices. On an annual basis, energy prices rose 20.4% compared with September of the previous year, according to the same release. The Associated Press linked higher fuel costs to the fallout from the war with Iran, placing the increase in energy prices in the context of developments in the war and their impact on fuel costs.

Price increases extended to other components, with annual core inflation rising to 2.6% in September from 2.4% in August, according to the Associated Press. On a monthly basis, core prices rose 0.3%, while shelter, transportation and recreation posted increases of varying sizes, according to the Bureau of Labor Statistics breakdown. The shelter index rose 0.4% in September, adding an increase in that category to the pressures seen in energy prices. Among transportation categories, airline fares rose 1.2% during the month, while the used cars and trucks index increased 0.7% over the same period. The recreation index posted a monthly increase of 0.5%, adding to the list of components whose prices rose in the report. By contrast, the food at home index fell 0.1% month on month, declining as those categories rose. The communication index also fell 0.2% in September, diverging from the direction of the shelter, airline fares, used vehicles and recreation indexes.

The September report followed the Federal Reserve's increase in its target interest rate range that same month, according to the US central bank's statement. The increase was a quarter of a percentage point, lifting the target range for the federal funds rate to 3.75–4%. The Fed said in its policy statement that "inflation remains elevated," setting out its assessment of price pressures at the time of the rate hike. That decision preceded the release of September's consumer price reading, which subsequently showed an acceleration in annual headline and core inflation. Expectations of another rate hike increased during the session when the report was released, according to the Associated Press's coverage of US Treasury market moves.

In markets, the S&P 500 fell 1.1% in the session when the inflation report was released, according to the Associated Press. The stock market decline was accompanied by higher short-term Treasury yields as expectations of a US interest rate hike increased. The rise in yields eased as the session progressed, however, according to the agency's coverage, which described the shift in direction during trading. The Associated Press said yields "also pared their gains as the day progressed," documenting the easing of the bond market's earlier rise. The session when the report was released thus combined losses in the stock index with an increase in short-term yields that later narrowed, following an inflation reading that exceeded economists' estimates.

The Federal Reserve holds its next monetary policy meeting on 27–28 October, according to the schedule published on the central bank's website. The meeting follows the September report showing an acceleration in prices and precedes the scheduled release of October's consumer price reading. The Bureau of Labor Statistics is scheduled to release its October report on 10 November, according to the bureau's official release calendar. The bureau set 08:30 a.m. US Eastern Time for the report's release, covering the month in which the Fed's next meeting takes place. The next monetary policy meeting therefore precedes the release of October's reading, while September's reading will have been published before the meeting.