Inflation heated up again in September. The consumer price index climbed 0.6% from August and 3.7% versus a year earlier, the quickest monthly pace in five months. A big chunk of that came from fuel, with gasoline jumping 9.1% from August - the largest monthly rise since the Iran war's outbreak sent prices soaring in March.
Stripping out food and energy, prices advanced 0.3% on the month and 2.6% from a year earlier. Shelter's key gauge, owners' equivalent rent, rose 0.3% from August. Medical care services also increased 0.3%. Meanwhile, grocery prices edged down and prescription drug prices declined.
A services slice that removes both energy and rent posted another sizable gain for a second straight month. On the goods side, core categories logged their strongest increase since January 2025, helped by higher used car and apparel prices and a record jump for toys.
Tech-related prices stood out. Computer software and accessories surged a record 28.4% year over year, and a record 9.7% increase was recorded for computers, peripherals and smart home assistants, reflecting ongoing pressures tied to the data center buildout.
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The September CPI is the final inflation read before the Federal Reserve's Oct. 27-28 meeting. The Fed lifted rates in September for the first time since 2023, and officials have said they can assess incoming data before moving again, though their median forecast still penciled in one more increase this year.
Bonds and stocks reacted on cue: Treasury yields moved higher, and following the release the S&P 500 declined, while traders lifted the probability of an October hike to about 45%. Fed Chairman Kevin Warsh is scheduled to deliver remarks late Thursday in New York time at the IMF meetings in Bangkok.
Voters are feeling it. A separate report showed that, compared with a year earlier, inflation-adjusted average hourly earnings fell in September for the sixth consecutive month. Surveys show households increasingly frustrated as prices outpace wages, and a KFF poll this month found health care costs and gas tied as the top economic worry ahead of the midterms. Many voters cite the Iran conflict and President Donald Trump's tariffs as factors pushing living costs higher.
Policymakers and economists weighed in.
Senior economist Ben Ayers at Nationwide cautioned that firm core readings on the heels of higher energy costs raise the risk of pass-through into broader prices: "Obviously we knew there was going to be a spike in energy and fuel prices, but the firm readings for core CPI - which follows up a firmer reading on core CPI in August - those give us concerns that maybe we are seeing more pass-through from fuel prices into other goods and services." Bloomberg Economics' Anna Wong and Troy Durie noted the acceleration in core CPI might appear to lock in another hike, but the composition muddies that case, with a hot owners' equivalent rent print that could be an aberration.
Energy's role hasn't just been at the pump. Earlier in the year, the war pushed gasoline, diesel and other fuel costs higher, lifting inflation and borrowing costs. Diesel's path is tricky to see in CPI, and higher fuel typically shows up first in transportation services and then, with a lag, in food, furniture and other goods via freight costs.
The backdrop remains mixed: joblessness is low, consumers are still spending, and business investment is bolstering growth, even as inflation pressures reassert themselves. Markets are reacting to that tension in real time, from higher yields to a softer stock tape, and policy expectations are shifting with it.
One eye-catcher for retirees and near-retirees: the Social Security Administration said beneficiaries will get a 3.6% cost-of-living increase in 2027, the biggest in four years, based on third quarter CPI readings.
For everyday investors, the takeaway is simple enough to say out loud: pricier energy and sticky services are still moving both markets and the Fed. That can ripple into mortgages, car loans and cash yields. Keeping that chain in mind helps make sense of what you pay today and what your money earns tomorrow.
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