US inflation rises to 3.7% as fuel costs climb ahead of midterms

US inflation accelerated last month as petrol, clothing and airfares became more expensive, adding pressure on households just a few weeks before the midterm elections. ADVERTISEMENT ADVERTISEMENT The consumer price index rose 3.7% in September compared with a year earlier, the US Department of Labor said on Wednesday, up from 3.4% in August. On a monthly basis, prices jumped 0.6%, up from 0.4% the previous month. The annual figure was above the 3.6% forecast by economists surveyed by data provider FactSet. The figures underscore the lingering impact of the Iran war on petrol prices and the persistence of inflation, which fell sharply from a 9.1% peak in 2022 but has risen since the war began in late February. Excluding the volatile food and energy categories, core prices rose 2.6% from a year earlier, up from 2.4% in August. Monthly core inflation held at 0.3%. “CPI came in at 3.7%, slightly above expectations, and similarly core inflation was above predictions, suggesting that prices are feeding into the wider economy,” said Richard Carter, head of fixed interest research at Quilter Cheviot. Elevated inflation has posed political problems for Republicans in Congress and complicated the Federal Reserve’s efforts to bring price rises under control. A poll by The Associated Press-NORC Center for Public Affairs Research found that just 17% of US adults approve of President Donald Trump’s handling of the cost of living. Only 26% approve of his handling of the economy overall, a new low. Markets react: Will the Fed raise rates again? Following the higher-than-expected inflation figures, major US stock indices turned negative. Gold fell more than 1.7% to $4,105.50 an ounce, while silver was down more than 4% at $56.91 an ounce. Oil prices were mixed, with international benchmark Brent trading just above $105.70 a barrel, close to its opening level. US benchmark WTI rose 1.4% to $95.50 a barrel. Bond yields jumped following the news. The policy-sensitive two-year US Treasury yield rose 13 basis points to 4.93%, as traders increased bets on further Fed rate rises. The benchmark 10-year yield climbed about eight basis points to around 5.3%. Inflation moving further away from the Federal Reserve’s 2% target was the “last thing” global bond markets needed, according to Robin Brooks, a former Goldman Sachs economist and a senior fellow in economic studies at the Brookings Institution. Carter warned that persistent inflation could push US government borrowing costs higher. “It is not inconceivable that ten-year Treasury yields continue to march higher,” he said. The figures add pressure on the Fed as it weighs whether to raise rates again at its next meeting on 27–28 October. Last month, the central bank raised rates for the first time in three years, to a range of 3.75%–4%. Fed chair Kevin Warsh said inflation was not falling quickly enough towards its target. “The plain fact is that inflation is too high and has been for too long,” Warsh said at a news conference last month. He added that summer inflation reports “do not tell me that underlying trends have meaningfully improved”. Some Fed officials have since suggested they can wait before raising rates again, although their latest projections point to one more increase this year. Higher borrowing costs can slow spending and growth, helping to ease inflation. But they cannot resolve supply disruptions such as those caused by the Iran war, leaving the Fed trying to prevent higher energy costs from feeding into broader price rises. Higher fuel costs feed through to other prices Warsh has said his goal is to keep the petrol price spike from spreading to other areas of the economy. Higher fuel costs have already helped push airfares up by about 23% from a year ago. Petrol prices jumped about 9% from August to September, driving much of the overall increase in inflation. Prices at the pump have eased in recent weeks, though they remain higher than a month ago. Petrol averaged $4.34 a gallon nationwide on Tuesday, up a few cents from a month earlier. Higher fuel prices also raise shipping costs for businesses, some of which pass those costs on to consumers. Last week, PepsiCo said it would raise prices for some snacks and soft drinks to offset higher costs for fuel, aluminium and food ingredients. The expansion of artificial intelligence infrastructure has also sharply increased the cost of semiconductors, computer equipment and electrical components, feeding through to prices for consumer electronics such as gaming devices, laptops and smartphones.