US Inflation Accelerates Beyond Expectations in September

US inflation accelerated in September, with the annual consumer price index rising 3.7%, up from 3.4% in August and above the market consensus of 3.6%. Core inflation, which excludes the most volatile components, increased to 2.6% from 2.4% the previous month, also surpassing expectations for a 2.5% reading.

The renewed inflationary pressure was driven largely by a sharp increase in fuel costs, which rose by around 7% during the month. Higher energy prices are expected to feed through into other areas of the economy, complicating the policy outlook for U.S. officials and creating an additional challenge for President Trump’s administration ahead of November’s midterm elections.

The CPI figures followed a survey released earlier this month that showed a further deterioration in consumer sentiment, as households continued to grapple with rising living costs linked to the U.S. conflict with Iran and the impact of import tariffs, both of which have contributed to upward pressure on prices.

Attention now turns to the Federal Reserve’s policy path after the central bank raised its benchmark interest rate by 25 basis points to a range of 3.75%-4.00%, marking its first rate increase in three years. Policymakers also signaled that further tightening may be necessary in the months ahead.

While the Federal Open Market Committee is widely expected to leave rates unchanged at its October 28 meeting, softer-than-expected labor market data and a moderation in the PCE price index, the Fed’s preferred inflation measure, have tempered expectations of immediate action. However, markets continue to price in a possible rate hike in December and see scope for a broader tightening cycle should inflation remain on an upward trajectory.