US inflation rises to 3.7% in September ahead of midterms

US inflation rose to 3.7% in September, according to the Bureau of Labor Statistics. The increase, which was higher than the 3.6% forecast by economists polled by Dow Jones, marks the final Consumer Price Index (CPI) report before the November midterm elections.

Energy costs drive price increases

The rise in inflation was primarily driven by high energy costs triggered by the Iran war. The BLS stated that "the index for gasoline rose 9.1 percent in September, accounting for over half of the monthly all items increase." Overall prices rose 0.6% from August.

Since late February, when the United States and Israel launched the Iran war, the price of unleaded gas has risen 45%. Diesel prices, which impact businesses and shipping, have soared 70% over the same period. Oil prices have risen to more than $106 per barrel from about $80 since August. According to the BBC, vehicle fuel prices jumped by 34.2% over 12 months, and overall energy inflation was up by 20.4% over the year.

Core inflation and wage growth

Core inflation, which excludes food and energy prices, rose to 2.6% from a year ago, or 0.3% from August. This figure was also slightly higher than expected. While food inflation remained subdued, rising 2.5% across the year, other categories such as housing, clothing, and restaurant food saw price increases. Only groceries, medical care commodities, and utility gas service saw price declines.

Wage growth has paced at 3% on an annual basis as of September. Paychecks have not grown faster than inflation since March, raising concerns about the toll on consumers.

Political and market reactions

The data comes at a critical time for Republicans defending majorities in the House and the Senate, as polls indicate that inflation and the cost of living are top issues for voters. Kevin Hassett, director of the National Economic Council, called the number "disappointing" on Fox Business but maintained that "a lot of Trump policies are helping to keep inflation down."

Following the report, stock markets fell sharply. The Nasdaq Composite closed down 1.8%, the S&P 500 tumbled 1.1%, and the Russell 2000 index slid 1.9%. Market odds for a Federal Reserve rate hike in October rose above 55% after the data release, up from expectations of a December hike.

Social Security adjustments

Shortly after the inflation figures were released, the Social Security Administration announced that benefits would rise by 3.6% in 2027. This cost-of-living adjustment will take effect in January for about 72 million people, resulting in an average retirement benefit increase of $75 a month.

Why it matters

The September inflation report is the last major economic indicator before voters head to the polls in the November midterms. With energy prices surging due to geopolitical conflict and wage growth lagging behind inflation, the cost of living remains a central concern for consumers and a pivotal issue for both political parties. The potential for a Federal Reserve rate hike in October adds further uncertainty to consumer borrowing costs and market stability.

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Sources

• nbcnews.com: Inflation jumps to 3.7% as gas, diesel prices squeeze consumers
• bbc.com: US inflation rises more than expected - here's what is happening with prices

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.