U.S. Consumer Prices Accelerated in September as Gasoline and Shelter Push Inflation Up

U.S. consumer prices accelerated in September, a fresh sign that inflation pressures remain difficult to fully shake even as the Federal Reserve keeps interest rates elevated. The Bureau of Labor Statistics said Oct. 14 that its Consumer Price Index rose 0.6% in September from August on a seasonally adjusted basis, lifting annual inflation to 3.7% from 3.4% in August.

Much of the monthly increase came from energy, especially gasoline. “The index for gasoline rose 9.1 percent in September, accounting for over half of the monthly all items increase,” the BLS said in its CPI release. But the report was not only an energy story. Core CPI, which strips out food and energy and is closely watched as a gauge of underlying inflation pressure, rose 0.3% on the month and 2.6% from a year earlier, up from 2.4% annual core inflation in August.

Other major categories pointed to persistent price pressure beyond the gas pump. Shelter, one of the largest components of household budgets, rose 0.4% in September and was up 3.2% from a year earlier. Owners’ equivalent rent, a measure of what homeowners would pay to rent a similar home, increased 0.3% in the month. The food index was unchanged overall in September, as food away from home rose 0.2% while food at home fell 0.1%.

Energy was still the clearest driver of the headline jump. The broader energy index climbed 5.2% in September and was up 20.4% from a year earlier. Within that, gasoline prices were up 34.2% on an annual basis. The pickup in both headline and core inflation adds to the challenge for the Fed, which has been tightening policy in an effort to bring inflation back to its 2% target.

The central bank had already raised its benchmark interest rate to a range of 3.75% to 4.00% at its Sept. 15-16 meeting. After the September CPI report, market-implied odds of another rate increase at the Fed’s Oct. 27-28 meeting rose sharply, according to CME FedWatch data as reported by financial outlets. Those odds moved from roughly 22% before the release to the mid-30s to low-50s percent intraday, depending on the time of day and source. Treasury yields also rose and major U.S. stock indexes opened lower after the data, reflecting expectations that hotter inflation could keep borrowing costs higher.

A second inflation report the next day reinforced the message from consumer prices. The BLS said Oct. 15 that its Producer Price Index, which tracks price changes before they reach consumers, showed final demand prices rising 1.3% in September and 6.3% from a year earlier. Energy played a major role there as well: Final-demand gasoline jumped 20.3% in September, suggesting that the same fuel-price pressures driving consumer inflation were also moving through the supply chain.