September Consumer Prices Rose 0.6%, Annual Inflation Hits 3.7% as Gasoline Jumps 9%

Consumer prices rose 0.6% in September from August, the fastest monthly pace since April, the Bureau of Labor Statistics said today, Oct. 14. Annual inflation climbed to 3.7% from 3.4% in August. Economists had forecast 3.6%.

It is the last CPI report before the midterm elections.

Gasoline drives the monthly jump

Gasoline did most of the damage. The gasoline index rose 9.1% in September after a 3.9% jump in August, and the bureau said it accounted for more than half of the monthly increase. Gasoline is up 34.2% from a year ago.

The broader energy index rose 5.2% after a 4.2% gain in August. Fuel oil, which includes diesel, jumped more than 15%.

The American Automobile Association puts the average price of a gallon of gasoline at $4.33, against $4.31 a month ago. Diesel averages $6.29, up from $6.23. GasBuddy's Patrick DeHaan said 2026 has now seen 158 days with the national average above $4 a gallon, more than any prior year.

Oil is holding above $90 a barrel as the war in Iran approaches its ninth month. "Inflation is cooking with gas," Jamie Cox, managing partner at Harris Financial Group, said in an emailed note. "It is abundantly clear where the inflation impulse originates, but two wars need to end before we get any relief."

Kyle Moore, chief economist at The Century Foundation, called the Iran war "directionless" and said it continues to disrupt supply chains and push up food and fuel prices.

Core inflation also came in hot

Strip out food and energy and the picture is still not comfortable. Core prices rose 0.3% on the month, above the 0.2% analysts expected. Annual core inflation edged up to 2.6% from 2.4%, against a forecast of 2.5%.

Shelter rose 0.4% in September after a 0.3% gain in August, and is up 3.2% over twelve months. Food prices were flat on the month and are up 2.5% from a year ago. Grocery prices fell 0.1% while restaurant prices rose 0.2%.

Within the grocery aisle, poultry rose 0.7% and fruit and vegetables 0.5%, while milk fell 2.1% and beef 0.9%.

The Fed and the dollar react

The Federal Reserve raised its policy rate by a quarter point to a range of 3.75% to 4.00% last month, its first hike in more than three years. The next FOMC meeting is Oct. 27-28.

Markets moved fast on the data. The U.S. dollar index rose 0.68% to 102.86, its highest since April 2025. Bloomberg's dollar gauge reached its highest since May 2025, extending a rally to a fifth week. Treasuries sold off and yields rose across maturities.

CME Group's FedWatch tool showed a 56% chance the Fed holds rates at the October meeting, up from 53% a month ago. It also showed about 79 basis points of tightening priced in by late 2027. Bank of America strategist Alex Cohen described October pricing as having "swung quickly back."

"The higher-than-expected core inflation print raises concerns that energy-driven inflation is spreading to other areas of the economy," said Uto Shinohara, senior investment strategist at Mesirow Currency Management.

Not everyone sees broad pressure

The Fed's own officials are split in tone. New York Fed President John Williams made comments this week that weakened the dollar, and Fed Vice Chair for Supervision Michelle Bowman signaled a wait-and-see approach before raising rates again. The August PCE price index, one of the Fed's preferred gauges, came in softer than expected.

Marvin Loh, senior global market strategist at State Street, argued the CPI data makes that dovish stance harder to sustain. "Inflation was hotter. It was more broad-based, so certainly not a one-off type situation, which allows those that are more dovish to ignore it," he said. "I think the Fed ultimately is going to need to have a serious conversation around it."

Truflation, which tracks prices in real time, sees it differently for now. "Inflation is not yet broadening decisively at the consumer level, but the upstream pipeline is becoming more inflationary," the firm said. It pointed to energy and tariffs as threats to renewed goods inflation, and said weaker employment and wage growth limit demand-driven pressure. "The key risk is supply costs spreading into core inflation."

The Cleveland Fed projects October annual inflation at 3.6%, with a 0.3% monthly gain. That would be a slight easing from September.

The debt backdrop

The data landed as finance chiefs gather in Bangkok for the IMF and World Bank annual meetings. IMF Managing Director Kristalina Georgieva said the U.S. needs fiscal adjustments to put its debt on a more sustainable path. Rodrigo Valdes, the IMF's fiscal affairs chief, said the fund has "dialed up" the urgency of its call for governments to rein in growing debts.

Fed official Thomas Barkin was scheduled to speak later today, and the Fed released its monthly Beige Book. Both could shape expectations before policymakers meet Oct. 27-28. At that meeting, the committee will weigh whether a 3.7% headline and a 2.6% core rate push it to a second hike, or whether the softer August PCE and the Cleveland Fed's projected easing in October are enough to hold it off.