Key facts
- US inflation rose to 3.7% in September, exceeding economists' forecasts.
- Energy prices, including petrol and airfares, were the primary drivers of the increase.
- The annual inflation rate of 3.7% is the highest recorded before a US midterm election since 1990.
- Consumer prices increased by 0.6% month-on-month in September.
- Core inflation, excluding food and energy, rose 2.6% year-on-year.
- US stock indices turned negative following the inflation data, while gold and silver fell.
US inflation accelerated to an annual rate of 3.7% in September, driven by higher petrol prices, clothing, and airfares, according to data released by the US Department of Labor. This figure exceeded economists' forecasts and marks the highest inflation rate seen before a US midterm election since 1990.
On a monthly basis, prices rose by 0.6%, a notable increase from the 0.4% rise in August. Core inflation, which excludes volatile food and energy categories, also saw an uptick, rising 2.6% year-on-year and holding at 0.3% monthly. This persistent inflation puts pressure on households and complicates the Federal Reserve's efforts to control price increases.
Richard Carter, head of fixed interest research at Quilter Cheviot, noted that the inflation figures suggest prices are impacting the broader economy. The lingering effects of the Iran war on oil prices have contributed to the rise, with petrol prices jumping approximately 9% from August to September. Higher fuel costs have also contributed to a roughly 23% increase in airfares compared to the previous year.
The inflation data has had an immediate impact on financial markets. Major US stock indices turned negative, gold fell more than 1.7%, and silver dropped over 4%. Bond yields also increased, with the two-year US Treasury yield rising 13 basis points to 4.93% and the 10-year yield climbing about eight basis points to 5.3%. Robin Brooks, a former Goldman Sachs economist, commented that this inflation trend is unwelcome for global bond markets.
The Federal Reserve is now under increased pressure as it considers its next move on interest rates. The central bank recently raised rates for the first time in three years, and Fed chair Kevin Warsh has expressed concern that inflation is not receding quickly enough towards the 2% target. While some Fed officials have indicated a potential pause, projections suggest one more rate increase may occur this year. Higher borrowing costs are intended to curb spending and ease inflation, but they cannot fully address supply-side issues like those stemming from the Iran war.