US Inflation Rises to 3.7% as Gasoline Surges, Putting an October Fed Hike in Play

U.S. consumer prices rose 3.7% in the 12 months to September, up from 3.4% in August, the Bureau of Labor Statistics announced on Wednesday. Economists polled by Reuters had expected 3.6%. Core CPI, which strips out food and energy, rose 2.6% year over year after 2.4% in August, also a tenth of a point above forecasts.

On a monthly basis, the headline index rose 0.6% on a seasonally adjusted basis, in line with expectations. Core prices rose 0.3% for a second straight month, ahead of the 0.2% economists had forecast.

Energy drove most of the increase. The BLS said the gasoline index rose 9.1% in September and accounted for more than half of the monthly rise in the all-items index. Gasoline prices are up 34.2% from a year earlier and the broader energy index is up 20.4%. Food prices were unchanged on the month, while shelter rose 0.4% and is up 3.2% over the year.

The core reading is the more important number for the Federal Reserve because it is less exposed to swings in oil. Core inflation had fallen to 2.4% in August, its lowest since March 2021, and its rebound suggests that higher energy costs are starting to pass through to services such as travel. Car rentals and hotel prices both rose sharply in September.

The Fed has already started tightening in response. At its September meeting the Federal Open Market Committee voted unanimously to raise the federal funds rate by a quarter point to a target range of 3.75% to 4%. Its next decision is due on Oct. 28, and fed funds futures moved after the report to price close to even odds of another hike at that meeting, up from less than 25% beforehand. Several economists still expect the Fed to wait until its Dec. 8–9 meeting, which comes with updated projections.

Bitcoin fell after the release. It was trading around $81,500 at the time of writing, down roughly 2.5% over 24 hours after touching a high of about $84,000, according to CoinGecko. Higher rate expectations tend to weigh on crypto by raising the return on cash and Treasuries and tightening dollar liquidity.

The September report is the last CPI release before the U.S. midterm elections. October CPI is not due until Nov. 10, so this print will be the latest consumer inflation reading the FOMC has in hand when it decides on Oct. 28.