Key facts
- US inflation accelerated in September, with the CPI rising 3.7% year-on-year.
- Higher gas prices were the primary driver of the inflation increase.
- Consumer spending remains robust, contributing to broader price increases.
- Markets are closely divided on the likelihood of a further Federal Reserve rate hike.
- Federal Reserve officials are assessing whether price increases are due to temporary shocks or unsustainable economic activity.
Inflation in the U.S. unexpectedly accelerated in September, primarily driven by a surge in gasoline prices, which accounted for more than half of the overall cost increases. The Labor Department reported on Wednesday that the consumer price index rose 3.7% over the 12 months ending in September. Beyond volatile food and energy costs, prices also increased more than anticipated, reflecting continued robust consumer spending.
The latest inflation data is fueling expectations that the Federal Reserve might implement another interest rate hike. Market sentiment, as indicated by CME's FedWatch tool, suggests roughly even odds of either a rate increase or a hold at the upcoming meeting. However, senior central bankers have recently signaled a willingness to be patient, emphasizing the need to monitor inflation trends. Fed officials are currently working to distinguish between price increases driven by temporary supply shocks, potentially linked to foreign policy, and those stemming from unsustainable economic activity.