US inflation climbs to 3.7% as gasoline prices surge, putting another Fed rate hike in play

Inflation in the United States picked up again in September, driven by a steep rise in fuel costs linked to the war involving Iran. The consumer price index rose 0.6% from August and 3.7% from a year earlier, the Bureau of Labor Statistics (BLS) said on Wednesday, 14 October. That was faster than the 3.4% annual rate recorded in August and above the 3.6% economists had forecast, according to CBS News.

Gasoline was the biggest single factor. Pump prices rose 9.1% in September alone and accounted for more than half of the month's overall increase, according to the BLS. Over 12 months, gasoline is up 34.2% and the wider energy index is up 20.4%. Airline fares, which follow the cost of jet fuel, are 22.4% higher than a year ago.

Beyond energy

Core inflation, which strips out volatile food and energy prices, rose 0.3% in the month and 2.6% over the year, slightly above the 2.5% that forecasters expected. Shelter costs rose 0.4% in September and are up 3.2% over the year, while food prices were flat in the month and 2.5% higher than a year earlier. Used car prices rose 0.7% in September but remain slightly below their level of a year ago.

Economists quoted by CBS News did not mince words. “The CPI was clearly hot, and there aren't many ways to sugarcoat it,” said Adam Crisafulli of Vital Knowledge, who added that energy prices staying high for so long are starting to spread into the wider economy. CBS also noted that the AAA national average for gasoline stood at $4.33 a gallon on the day of the report, against $2.98 before the war, and that diesel averaged $6.29.

What it means for interest rates

The Federal Reserve raised its benchmark rate in September for the first time since 2023, to a range of 3.75% to 4%, and officials have signalled that more increases are possible this year. Stephen Brown, chief North America economist at Capital Economics, told CBS News the report was “the type of move that could prompt the Fed to pull the trigger on another hike this month.”

The Fed's next policy meeting is on 27 and 28 October, followed by another on 8 and 9 December. The next consumer price report, covering October, is due on 10 November. With oil above $100 a barrel and US midterm elections on 3 November, the cost of living is likely to stay at the centre of economic and political debate in the weeks ahead.