By Lucia Mutikani
WASHINGTON, Oct 14 (Reuters) – US consumer prices accelerated in September as the cost of gasoline surged, dealing another blow to President Donald Trump and his Republican Party ahead of the November 3 midterm elections and putting an interest rate increase later this month back on the radar.
The Consumer Price Index report from the Labor Department on Wednesday showed a broadening of price pressures beyond energy, raising concerns among economists that underlying inflation could be getting sticky. There was also an AI-related boost to inflation last month. Financial markets now see the Federal Reserve’s interest rate decision at its October 27-28 meeting as a closer call than before the data was released.
The report added to surveys this month that showed a further deterioration in consumer sentiment and a plunge in Trump’s approval rating, driven by angst over the rising cost of living. A Reuters/Ipsos poll showed about 78% of Americans blamed Trump’s policies, including tariffs and the Middle East conflict, for rising prices, which are outpacing wages.
“The inflation we’re experiencing right now is largely the result of erratic policy from the executive branch,” said Kyle Moore, chief economist at the Century Foundation, a progressive think tank. “Worse still, the directionless war in Iran continues to disrupt global supply chains. This administration has also been wholly unwilling to moderate the pace of the AI and data-center buildout.”
The CPI rose 0.6% last month after climbing 0.4% in August, the Labor Department’s Bureau of Labor Statistics said, in line with economists’ expectations. In the 12 months through September, the CPI advanced 3.7% after rising 3.4% in August.
A 9.1% surge in gasoline prices accounted for more than half of the increase in the CPI over the month. The US-Israeli war with Iran is driving up energy prices. Other motor fuels, which include diesel, soared 11.9% last month and were up 60.9% on a year-over-year basis. Diesel prices at the pump are at record highs, and there are fears that those costs will soon feed through to higher prices at the supermarket.
Food prices were unchanged after gaining 0.1% in both July and August. Grocery store prices dipped 0.1% over the month as beef prices dropped 1.0% and the cost of dairy and related products eased 0.9%. Egg prices declined 1.3%.
But prices for nonalcoholic beverages surged 0.9%, while fruits and vegetables cost 0.5% more, with banana prices shooting up 1.0%, in what could be early signs of rising trucking costs being passed on to consumers. Lettuce prices rebounded 3.9% as a cyclospora outbreak faded.
Grocery prices rose 1.8% on a year-over-year basis.
Average hourly earnings for all employees declined 0.7% in September from a year ago, after falling 0.3% in August, underscoring the squeeze on consumers in what economists call the bottom of a K-shaped economy.
Economists said this data raised doubts about whether consumers could maintain their robust pace of spending.
“While much of the lost purchasing power is due to rising energy costs, there is no reason to expect that to fade in the near term,” said Eric Winograd, chief US economist at AllianceBernstein. “The bottom part of the K-shaped economy is losing ground, as anybody who has seen campaign ads on TV the last few weeks has heard.”
With the cost of living rising, the Social Security Administration announced a 3.6% cost-of-living adjustment for Social Security and Supplemental Security Income benefits for 2027. The programs benefit nearly 72 million Americans, including retirees, the disabled and certain widows, widowers and children. Social Security retirement benefits will, on average, increase by $75 per month.
Stocks on Wall Street fell. The dollar advanced versus a basket of currencies. Yields on US Treasury notes and bonds rose.
Excluding the volatile food and energy components, the CPI rose 0.3% in September, matching the gain in August. Economists polled by Reuters had forecast the so-called core CPI would increase 0.2%. The core CPI was lifted by a 0.4% advance in the cost of shelter, including hotel and motel rooms. Owners’ equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, rose 0.3%.
Airline fares rose 1.2% amid higher jet fuel prices. Consumers paid more for gardening and lawn care services, likely reflecting worker shortages amid a crackdown on undocumented immigrants. The costs of recreation and education also rose, as did those of hospital and dental services. Overall services prices increased 0.4%. They were also up 0.4% excluding energy.
Core goods prices rose 0.3%, pushed up by a 0.7% increase in the cost of used cars and trucks. Apparel prices climbed 0.3% and the cost of toys rebounded 4.2%, suggesting some lingering pass-through from tariffs. But prescription medication was cheaper.
Prices for computers and peripherals jumped 1.3%, reflecting AI-related investment, while the cost of computer software and accessories rebounded 0.4%.
In the 12 months through September, core CPI inflation was 2.6%, compared with 2.4% in August.
The US central bank tracks the Personal Consumption Expenditures Price Index for its 2% inflation target. Financial markets raised the chances of a rate hike at the Fed’s meeting this month to roughly 37% from about 22% prior to the release of the CPI report, CME Group’s FedWatch Tool showed.
The odds of a rate increase this month had diminished following underwhelming payroll gains in September as well as cooler-than-expected PCE inflation readings for July and August.
The Fed in September raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range, its first hike in three years, and flagged further increases in borrowing costs in the months ahead.
Most economists continue to expect the Fed will hold rates steady this month and raise them in December.
Based on the CPI data, economists’ estimates for core PCE inflation ranged from 0.3% to 0.4%, which would mean a year-over-year reading of 3.1%. Producer price data being released on Thursday could impact those estimates. Core PCE inflation was 0.2% in August and 3.0% on a year-over-year basis.
“What is interesting is that the primary drivers of inflation are supply-side policies that are better addressed by the fiscal authority,” said Joseph Brusuelas, chief economist at RSM. “However, that is not going to happen anytime soon, which leaves the Fed to address a re-establishment of price stability.”
(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Paul Simao)
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