US inflation rises before midterm elections, fuelling rate hike fears
Economists divided on Fed rate hike as inflation creates uncertainty before US midterm elections in a tense market.
Key points
- US annual inflation rose to 3.7 percent in September from 3.4 percent in August.
- Petrol prices jumped 9.1 percent in September and were up 34.2 percent year-on-year.
- The Fed will decide on rates later this month, with markets split between a hold and a hike.
United States consumer prices rose in September in the last inflation report before the midterm elections, raising the chances of an interest rate increase later this month. Annual inflation reached 3.7 percent, up from 3.4 percent in August, while monthly prices climbed 0.6 percent, according to the Labor Department's Bureau of Labor Statistics on Wednesday.
Petrol prices drove the increase, rising 9.1 percent in September and accounting for more than half of the monthly CPI gain. They were up 34.2 percent from a year earlier.
Energy and food costs
The BLS linked the petrol surge to tensions between the US and Iran and between Russia and Ukraine weighing on global energy prices. Kyle Moore, chief economist at The Century Foundation, said in a statement to Al Jazeera that "the directionless war in Iran continues to disrupt global supply chains, driving up the cost of food and fuel."
The average US petrol price is $4.33 per gallon ($1.14 per litre), compared with $4.31 a month ago, according to AAA. Diesel is at $6.29 per gallon (1.66 per litre), up from $6.23. Patrick DeHaan of GasBuddy wrote on X that 2026 has seen 158 days with average gas prices above $4 per gallon, more than any prior year.
Shelter costs rose 0.2 percent monthly, while overall food prices were unchanged. Food away from home increased 0.2 percent, offset by a 0.1 percent drop in grocery prices. Poultry, fruit and vegetables, and juice rose, while milk and beef fell. Computer software and accessories prices jumped 28 percent year-on-year.
The directionless war in Iran continues to disrupt global supply chains, driving up the cost of food and fuel.
— Kyle Moore, chief economist at The Century Foundation
Fed decision and market reaction
The data comes days before the Federal Reserve's rate decision later this month. Last month the central bank raised rates by 25 basis points to 3.75–4.00 percent, its first hike in three years. CME FedWatch shows a 52.9 percent chance rates stay put and a 47.1 percent chance of a quarter-point increase to 4.00–4.25 percent.
The report adds pressure on Republicans ahead of the November 3 midterms. A Reuters/Ipsos poll found about 78 percent of Americans blamed President Donald Trump's policies for higher prices. Markets fell after the release: the Nasdaq dropped 0.8 percent and the S&P 500 0.6 percent, while the Dow Jones was roughly flat at midday.
