Consumer prices rose 3.7% annually in September as gas prices skyrocket

Published Wed, Oct 14 2026 8:31 AM EDT

Key Points

• The consumer price index revealed annual inflation of 3.7% in September, reflecting a monthly rise of 0.6%, as reported by the Bureau of Labor Statistics on Wednesday.
• The Core CPI, which excludes food and energy prices, recorded an annual increase of 2.6% after a monthly climb of 0.3%.
• Energy prices played a significant role in this increase, with gasoline prices surging by 9.1%, accounting for approximately half of the overall index rise.
• Additionally, price pressures were widespread, with significant increases seen in shelter, vehicle costs, and apparel.

Main Content

September brought continued challenges regarding the cost of living, as consumer prices experienced another increase, keeping the inflation rate significantly above the Federal Reserve's target.

According to the Bureau of Labor Statistics report released Wednesday, the consumer price index, a comprehensive measure of costs for goods and services in the U.S. economy, rose by a seasonally adjusted 0.6% for the month, resulting in a 12-month inflation rate of 3.7%. Economists polled by Dow Jones anticipated respective increases of 0.6% and 3.6%.

When excluding the more volatile categories of food and energy, the core CPI increased by 0.3% for the month, leading to an annual rate of 2.6%, surpassing estimates of 0.2% and 2.5%.

To provide context, the annual rate of overall inflation stood at 3.4% in August, while the core rate was 2.4%.

A significant driver of the recent inflation has been surging energy costs. The energy index experienced a sharp increase of 5.2%, fueled by ongoing geopolitical tensions between the U.S. and Iran, following a conflict that began in late February and shows no imminent resolution.

Specifically, gasoline prices surged by 9.1%, which contributed nearly half of the headline CPI increase according to the BLS. Over the previous year, gasoline prices have risen by 34.2%, while fuel oil has seen an astounding increase of 74.2%.

In contrast, food prices remained stable month-over-month and climbed by 2.5% compared to last year. However, shelter costs increased by 0.4%, and used car and truck prices rose by 0.7%. Apparel prices, often affected by tariffs, advanced by 0.3% and are up 3.4% on an annual basis.

Following these developments, stock market futures dropped, while bond yields increased sharply. Futures traders raised the probabilities of a rate hike in the upcoming Federal Open Market Committee meeting on October 27-28 to approximately 54%, according to the CME Group's FedWatch tool. Furthermore, expectations for a rate increase before the year concludes surged to over 96%, with a near 50-50 chance of the Fed raising rates by half a percentage point by December.

This report marks the final CPI reading available to FOMC officials prior to that anticipated meeting. Additionally, on Thursday, the Bureau of Labor Statistics is expected to release the September figures for the producer price index, which measures wholesale costs.

"CPI data surfaced hotter than expected, and it was not solely due to fuel prices, as core inflation recorded a 3.7% annualized growth in September, averaging 3.2% over three years," remarked Sonu Varghese, chief macro strategist at Carson Group. "What is surprising is that investors continue to express astonishment at the broad-based nature of inflation. Furthermore, we have yet to feel the complete repercussions of rising diesel prices and the implications of the AI boom."

Inflation, as indicated by the CPI, has exceeded the Federal Reserve's 2% objective since March 2021. While the measure showed a declining trend earlier in 2026, it experienced a spike following military actions taken by the U.S. and Israel against Iran.

In recent months, the year-over-year inflation trajectory has moderated but remains well above the Federal Reserve's target.

In response to the inflationary pressures, Federal Reserve officials enacted their first interest rate hike in over three years in September, a rise of 0.25 percentage points that adjusted the benchmark funds rate to a target range of 3.75%-4%. Markets currently anticipate that the Fed will refrain from increasing rates in October but will likely do so again in December.

The type of supply shocks contributing to the surge in energy prices are generally viewed as temporary, and policymakers typically consider such shocks alongside other data when determining rate adjustments. However, Fed officials express concern that if the conflict persists, the risk of this energy increase permeating the broader economy and becoming embedded in consumer and business expectations will heighten.

Moreover, prices have been impacted by tariffs implemented by President Donald Trump, alongside robust demand for goods linked to the expansion of artificial intelligence.

Recently, key policymakers have expressed the view that the Fed should not hastily pursue another rate hike, although the majority anticipate an increase will occur this year. Market forecasts suggest that the Fed may raise rates at least twice more by 2027.

While Fed officials consider the CPI and various other economic indicators, they primarily reference the personal consumption expenditures price index from the Commerce Department as their chief forecasting and policymaking tool. The PCE figures for September will be disclosed later this month.