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September inflation came in hotter than expected, driven largely by soaring energy costs. The Consumer Price Index rose 3.7% over the 12 months ending in September, according to the Bureau of Labor Statistics, exceeding Wall Street's forecast of 3.6%.
Lucia Mutikani at Reuters noted that economists had anticipated a slightly lower reading. The latest figure marks an acceleration from August's 3.4% annual rate and moves inflation further from the Federal Reserve's 2% target.
Gasoline prices jumped 9.1% in September, accounting for over half of the monthly increase. The energy index rose 5.2% for the month, following a 2.1% gain in August. Food prices increased 2.5% compared with a year ago.
Core inflation, which excludes volatile food and energy costs, rose 0.3% from August and 2.6% year over year. The annual core rate came in above economists' expectations of 2.5%.
Oil-related costs have been a major inflation driver since the U.S. war with Iran began earlier this year. Brent crude, the global benchmark, traded around $105 per barrel on Tuesday (October 13). President Trump announced loosened diesel restrictions on Russia last week in an effort to boost global oil trade.
The September report arrives as the Federal Reserve weighs its next policy move. The central bank raised interest rates for the first time in three years in mid-September, stating that "inflation remains elevated." Economists at Kiplinger predict the annual inflation rate will end the year at 4%, while core inflation settles at 2.7%.
"Today's warmer core CPI release bolsters the case for additional rate hikes," said Jeff Schulze, Head Investment Strategist at Franklin Templeton Institute.
Skyler Weinand, Chief Investment Officer at Regan Capital, expects the Fed to resume rate increases in December. "The Fed will not tolerate inflation at these levels and will apply the same playbook as it did in 2022 to keep it in check with a series of interest rate increases," Weinand stated.
The next Federal Reserve meeting is scheduled for Wednesday, October 28, when policymakers will announce their latest rate decision.