Inflation Heats Up: September CPI Hits 3.7%, Hotter Than Expected — Fed Rate Hike Back on the Table

 

WASHINGTON — US inflation accelerated in September, rising faster than economists expected and reviving talk of another Federal Reserve interest-rate hike before the end of the year.

The Consumer Price Index rose 0.6% for the month and 3.7% over the past 12 months, the Bureau of Labor Statistics reported Wednesday — up from 3.4% in August and above the 3.6% consensus forecast. Core CPI, which excludes volatile food and energy prices, climbed 0.3% on the month and 2.6% on the year, also topping expectations of 2.5%.

Soaring energy costs did most of the damage. The energy index jumped 5.2% in September alone and is up 20.4% over the past year, with gasoline prices up 9.1% month-over-month and 34% year-over-year, and fuel-oil prices up 74% since last September. Services inflation also heated up: core services rose 0.4%, the biggest increase since April, with hotel and motel rates jumping 2.3% and shelter costs up 0.4%.

The report landed just two weeks before the Fed's October 28 rate decision. Traders immediately repriced: CME FedWatch showed the odds of a hike at the October meeting roughly doubling to 44%, from 22% before the report, with a 96% probability of at least one hike by December. The 10-year Treasury yield spiked to 5.29%, while stock futures turned negative, with the S&P 500 and Nasdaq pointing lower at the open.

The inflation pickup also complicates the political picture three weeks before the November 3 midterm elections, with five years of rising prices remaining the top concern for American voters.

Analysts will get one more inflation read before the Fed decides: the wholesale Producer Price Index for September arrives Thursday morning. This is a developing story.

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