US inflation heats up in September; Fed rate hike in October back on table
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Petrol prices above US$6 a gallon at a gas station in Emeryville, California, on Oct 12.
PHOTO: BLOOMBERG
- US consumer prices rose 0.6% in September and 3.7% over the year, driven by a 7.1% jump in petrol costs, Reuters reported.
- Core CPI also firmed, rising 0.3% in the month and 2.6% yearly, keeping inflation pressure on the US Federal Reserve and rate rise fears alive.
- The report hurt Trump politically and will help set 2027 Social Security COLA, with seniors expecting about a 3.5% rise, or US$67.90 a month.
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WASHINGTON – US consumer prices accelerated in September amid a surge in fuel costs, dealing another blow to President Donald Trump and his Republican Party ahead of the Nov 3 midterm elections and putting an interest rate increase later in October back on the radar.
The Consumer Price Index report from the Labor Department on Oct 14 showed a broadening of price pressures beyond energy, raising concerns among economists that underlying inflation could be getting sticky.
Financial markets now see the Federal Reserve’s interest rate decision in October as a closer call than before the data was released.
The report added to surveys in October that showed a further deterioration in consumer sentiment and a plunge in Trump’s approval rating, driven by angst over the rising cost of living.
A Reuters/Ipsos poll showed about 78% of Americans blamed Trump’s policies, including tariffs on imports and the Middle East conflict, for rising prices, which are outpacing wages.
“The last mile back to target could remain bumpy and keep interest rates elevated,” said Jeffrey Roach, chief economist at LPL Financial. “The report complicates the Fed’s decision in October, as the road back to price stability is looking increasingly difficult to navigate.”
The Consumer Price Index (CPI) rose 0.6% in September after climbing 0.4% in August, the Labour Department’s Bureau of Labour Statistics said. The increase in the CPI was in line with economists’ expectations.
A 9.1% surge in petrol prices accounted for more than half of the increase in the CPI over September. The US-Israeli war with Iran is driving up energy prices. Diesel prices have vaulted to record highs and there are fears that those costs will soon feed through to higher prices at the supermarket.
Food prices were unchanged after gaining 0.1% in both July and August. Grocery store prices dipped 0.1% over the month, but rose 1.8% on a year-over-year basis. Beef prices dropped 1% in September and the cost of dairy and related products eased 0.9%. But prices for non-alcoholic beverages surged 0.9%, while fruits and vegetables cost 0.5% more.
In the 12 months till September, the CPI advanced 3.7% after rising 3.4% in the year ended August.
Core inflation above expectations
Excluding the volatile food and energy components, the CPI gained 0.3% in September, matching the gain in August. Economists polled by Reuters had forecast the so-called core CPI would rise 0.2%. The core CPI was lifted by a 0.4% increase in the cost of shelter, including hotel and motel rooms. Owners’ equivalent rent rose 0.3%.
There were increases in the costs of recreation and education. Prices for used cars and trucks increased 0.7%, while airline fares rose 1.2% amid higher jet fuel prices. Apparel prices climbed 0.3%.
In the 12 months through September, core CPI inflation increased 2.6% after advancing 2.4% in the year to August. The US central bank tracks the Personal Consumption Expenditures Price Index for its 2% inflation target.
The core CPI measure is lagging behind core Personal Consumption Expenditures (PCE) inflation, which increased 3% in August, because of the different weights assigned to the components in the baskets.
Financial markets raised the chances of a rate hike at the Fed’s Oct 27-28 policy meeting to roughly 52% from about 22% prior to the CPI report, CME Group’s FedWatch Tool showed.
The odds of a rate increase in October had diminished following underwhelming payroll gains in September as well as cooler-than-expected PCE inflation readings for July and August.
US Treasury yields were mostly higher while the dollar advanced versus a basket of currencies. US stocks opened lower.
The central bank in September raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4% range, the first hike in three years, and flagged further increases in borrowing costs in the months ahead. Economists had expected the Fed to raise rates in December.
The September CPI inflation report was keenly awaited by millions of retirees and other Social Security recipients trying to figure out how much their benefits will increase in 2027.
The Social Security Administration announced a 3.6% cost-of-living adjustment for Social Security and Supplemental Security Income benefits for 2027. The programmes benefit older Americans who have retired as well as the disabled and certain widows, widowers and children. REUTERS