Core Inflation Hits 2.6% and Paychecks Have Trailed Prices Since March, BLS Data Show

Since the Iran war began in late February, unleaded gasoline has climbed 45% and diesel 70%. The Bureau of Labor Statistics' September report, released today, Oct. 14, shows how far that has spread beyond the pump.

Headline prices rose 0.6% from August and 3.7% from a year ago. The BLS said gasoline rose 9.1% in September and accounted for over half of the monthly increase. The energy index as a whole rose 5.2% after a 2.1% gain in August.

Core prices are moving too

Stripping out food and energy, core prices rose 0.3% on the month and 2.6% over twelve months. The Cleveland Fed's nowcasting model had projected core to hold at 2.4% year over year.

Core is the part of the index the Fed watches for evidence that energy costs are leaking into everything else. Housing, clothing and restaurant and takeout food all posted increases in September.

Only three major categories fell: groceries, medical care commodities and utility gas service. The index for food at home slipped 0.1%, while dining out rose 0.2%.

Paychecks are behind

Wage growth is running at 3% a year as of September. Paychecks have not grown faster than inflation since March.

That gap is the squeeze. A household whose pay rises 3% while the cost of living rises 3.7% loses ground every month, and diesel at 70% above pre-war levels feeds into the cost of anything shipped by truck.

Oil has gone from about $80 a barrel in August to more than $106, per NBC News' reporting on the BLS data.

What the White House says about oil

President Trump addressed oil at an Alaska rally. He said the U.S. had kept the Strait of Hormuz and other waterways open. "We opened the straits. The straits have been open," he said. "We've been taking more oil out of the straits now than we did before the war started. Believe it or not, we control the straits. That's why the oil stayed where it is."

He also said the war will "end very soon" and that Iran will not be allowed to obtain a nuclear weapon.

The price data sit awkwardly beside that claim. Crude has risen about $26 a barrel since August, and the Gulf is not quiet. The Saudi-led coalition said today it intercepted a Houthi ballistic missile fired toward Riyadh. Saudi Civil Defense issued an early warning for Riyadh and Al-Kharj, and the Houthis declared airports and oil facilities legitimate targets. Aramco reportedly came under fresh attack overnight.

Netanyahu said today he does not favor a preemptive strike on Iran before Israel's Oct. 27 election. Israel and Iran have not traded fire since June.

The Fed and the ballot box

Stock futures fell sharply after the release as traders weighed the chance of another Federal Reserve rate hike arriving sooner than expected. The Fed raised rates in September for the first time in more than three years.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, said after the August PCE data that the Fed was "probably correct in raising rates this month." He added that if inflation data improves, policymakers "might be able to skip a meeting or at least raise rates less than the 3 times in a row that many were worried about." September's numbers moved the other way.

The Fed's preferred gauge, the PCE index, was running at 3.4% in August, with core PCE at 3%. The BLS and BEA measures differ, but both show inflation well above the Fed's target.

Politically, the timing is rough for Republicans defending majorities in the House and Senate. Early voting begins this week, and polls consistently find inflation and the cost of living are top issues for voters in both parties. This is the final CPI report before the midterms.

What remains open is whether energy costs keep rising with the Gulf attacks, and whether the Fed answers with another hike before voters have their say.