U.S. Inflation Climbs to 3.7% in September as Gasoline Surge Clouds Midterms

U.S. consumer prices accelerated in September, climbing 3.7% from a year earlier as gasoline costs surged, the Labor Department reported Wednesday—the last major inflation reading before the Nov. 3 midterms and a fresh political headache for Republicans already trailing on affordability.

The consumer price index rose 0.6% from August to September, the largest monthly gain in five months and in line with economists’ forecasts. Annual inflation had held at 3.4% in July and August before jumping last month. Core CPI, which strips out food and energy, rose 2.6% year over year, up from 2.4% in August and above the 2.5% pace many economists had expected.

Gasoline drove more than half the monthly jump

Gasoline prices climbed 9.1% in September from the prior month and accounted for more than half of the overall CPI increase, the Bureau of Labor Statistics said. Energy prices were up 20.4% from a year earlier, while gasoline jumped 34.2%. AAA put the national average near $4.33 a gallon on Wednesday, well above levels before the Iran conflict disrupted global oil flows earlier this year. Diesel averaged about $6.29 a gallon after hitting a record high in late September.

Higher diesel costs filter through trucking and retail, lifting prices on groceries and other everyday goods. Airline fares were up 22.4% from a year ago. Shelter and used-car costs also pushed core inflation higher.

“The CPI was clearly hot, and there aren’t many ways to sugarcoat it,” Adam Crisafulli of Vital Knowledge told clients, pointing to energy’s outsized role and the risk that high fuel prices continue to seep into the broader economy.

Fed rate-hike odds climb

The Federal Reserve already raised its benchmark rate a quarter point in September to a 3.75%–4.00% range, its first hike since 2023. Markets raised the odds of another increase at the Oct. 27–28 meeting to roughly 50% after the report, up from about 20% beforehand, according to CME Group’s FedWatch Tool.

“Today’s hotter-than-expected CPI report shows that inflation is still well above the Fed’s target, and that the current rate-hiking cycle isn’t likely to end anytime soon,” said David Royal of Thrivent.

Affordability remains voters’ top economic concern weeks before Election Day. Nine in 10 Americans say prices are the most important factor shaping their view of the economy, according to a recent CBS News poll, leaving Republicans to defend an inflation trajectory that has worsened since spring even as the White House argues energy shocks from overseas conflicts are to blame.