US Inflation Heats Up in September; Fed Rate Hike This Month Back on the Table

  • US consumer prices rose 0.6% month-over-month in September, accelerating from 0.4% in August, while annual inflation climbed to 3.7% from 3.4%, remaining above the Fed’s 2.0% target. The CPI report released on Wednesday, October 14, 2026, also showed price pressures broadening beyond energy, raising concerns that underlying inflation could be getting sticky.
  • A 9.1% surge in gasoline prices accounted for more than half of the monthly increase in the CPI, as the US-Israeli war with Iran continued to drive energy costs higher. Other motor fuels, including diesel, jumped 11.9% in September and were 60.9% higher year-over-year. Food prices were unchanged during the month, while grocery prices edged down 0.1%.
  • Excluding food and energy, core CPI rose 0.3% in September, above expectations for a 0.2% increase, while annual core inflation accelerated to 2.6% from 2.4%. Shelter costs rose 0.4%, airline fares increased 1.2% and overall services prices advanced 0.4%. Core goods prices also rose 0.3%, with increases in used vehicles, apparel and toys suggesting some continued tariff pass-through.
  • The increase in the cost of living is also placing pressure on household purchasing power. Average hourly earnings declined 0.7% year-over-year in September after falling 0.3% in August, raising questions over whether consumers can sustain the recent pace of spending.
  • Following the report, financial markets raised the probability of a Fed rate hike at the October 27–28 meeting to roughly 37% from about 22% before the data were released. The Fed raised its policy rate by 25 basis points in September to 3.75%–4.00%, its first increase in three years. Most economists still expect the Fed to hold rates this month and raise them again in December.
  • The main concern for the Fed is that the inflation shock is no longer confined to energy. The stronger core reading and increases across services and goods suggest that higher fuel costs, tariffs and other supply pressures may be feeding into broader prices. This strengthens the case for keeping monetary policy restrictive and could increase the likelihood of further tightening if underlying inflation remains persistent.

(Source: Reuters)