September CPI report shows inflation accelerated to 3.7% as energy costs soared

Inflation accelerated across the U.S. in September, rising at an annual rate of 3.7% as energy costs jumped, according to new government data.

The latest Consumer Price Index shows that stubborn price pressures persist just weeks before Americans vote in the midterm elections.

By the numbers

The CPI tracks changes in prices over time for a basket of commonly purchased goods and services. Economists expected the index to rise at an annual rate of 3.6% in September, according to FactSet.

Inflation picked up after two months of holding steady at an annual pace of 3.4%. Core CPI, which excludes the more volatile energy and gas categories, rose 2.6% from a year ago, accelerating from a 2.4% rate in August and higher than economists' forecast of 2.5%.

Inflation has risen sharply since the start of the year due to soaring energy prices, sparked by the war in Iran and Russia's war with Ukraine. 

The Labor Department said Wednesday that gasoline prices, which rose 9.1% in September from the prior month, accounted for more than half the monthly increase in the CPI report. Energy prices rose 20.4% from a year ago, while gasoline jumped 34.2%.

Prices at the pump have cooled slightly in recent weeks but remain elevated. The national average for a gallon of gasoline was $4.33 a gallon on Wednesday, AAA reported, up from $2.98 before the war started. The national average for diesel, which hit a record high in late September, was $6.29 a gallon.

Higher diesel prices increase the cost of transporting goods around the U.S., often leading to higher prices for consumers on everyday items like groceries. 

"The CPI was clearly hot, and there aren't many ways to sugarcoat it," Wall Street analyst Adam Crisafulli, head of Vital Knowledge, said in a note to investors on Wednesday. 

Energy played a "huge role," he added, noting that prices may not head lower anytime soon as the wars in the Middle East and Ukraine escalate.

"Energy prices being so high for so long is starting to seep into the broader economy," he said.

One category of spending that saw large price increases last month was airline fares, which are up 22.4% from a year ago, according to the CPI report. Increases in shelter and used car costs also pushed up the core inflation figure, experts noted.

Nine in 10 Americans say prices are the most important factor shaping their views of the economy, according to a CBS News poll released earlier this month.

What this means for the Fed and interest rates

Economists say the September inflation figures could put pressure on the Federal Reserve to raise its benchmark interest rate later this month, as consumer prices rise faster than the central bank's 2% annual target. 

"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," David Royal, chief finance and investment officer at Thrivent, a financial services firm, said in an email.

The spike in core CPI shows price pressures are broadening into other categories beyond energy,  experts noted, a sign inflation remains sticky. 

In September, the Fed hiked interest rates for the first time since 2023, bringing the federal funds rate to between 3.75% and 4%. Fed officials also signaled that they expect to raise rates again later this year. The central bank has two more policy meetings this year, on Oct. 27-28 and Dec. 8-9.

"This is the type of move that could prompt the Fed to pull the trigger on another hike this month, rather than wait as Fed officials have recently suggested, with markets now shifting to a 50% chance of that happening, up from 20% prior to the data," Stephen Brown, chief North America economist with Capital Economics, said in a report.