US inflation accelerates, complicating Fed's rate outlook

US inflation accelerated in September as a sharp increase in gasoline prices pushed up household expenses, adding to concerns over the cost of living and complicating the Federal Reserve's efforts to bring inflation under control. The Consumer Price Index rose 0.6 percent in September from the previous month, following a 0.4 percent increase in August, the Bureau of Labor Statistics reported on Wednesday. Consumer prices were 3.7 percent higher than a year earlier, up from a 3.4 percent annual increase in August. Energy was the biggest driver of the increase. Gasoline prices jumped 9.1 percent in September, accounting for more than half of the monthly rise in the overall CPI. The broader energy index increased 5.2 percent for the month and was up 20.4 percent from a year earlier. The surge came as the ongoing war in Iran disrupted energy supplies from the Middle East, driving fuel costs higher. Price pressures also extended beyond energy. Excluding volatile food and energy prices, core CPI increased 0.3 percent in September and 2.6 percent from a year earlier, compared with a 2.4 percent annual increase in August. The renewed inflation pressures are squeezing household purchasing power and creating a more difficult environment for the Federal Reserve, which raised its benchmark interest rate by 25 basis points in September to a range of 3.75 percent to 4 percent. The stronger inflation reading complicated the outlook for the Federal Reserve as policymakers prepare to meet on Oct 27-28, increasing market expectations for another rate increase. The report also weighed on financial markets, sending US stock futures lower and Treasury yields higher as traders reassessed the path of monetary policy. "The dual impacts of higher tariffs and higher petroleum prices are both causing monetary policy headaches for the Federal Reserve," Tom Fullerton, an economist and professor at the University of Texas at El Paso, told China Daily. "And those problems are complicated further by an irresponsibly elevated fiscal deficit during a year when the national economy is still expanding." Beyond the challenge for policymakers, persistent price pressures are continuing to strain household budgets, with lower-income Americans particularly vulnerable to rising costs. "Low-income households are always impacted the worst by inflation. That is especially the case in 2026 with grocery prices, utility prices, rent and transportation costs all rising at above-average rates," Fullerton said. Middle-income households are also being impacted by earnings growth at rates that fail to keep pace with consumer prices, higher healthcare insurance premiums, and increased mortgage rates, he said. While the US economy has continued to expand despite those pressures, Fullerton warned that the combination of elevated prices and slowing growth could pose a broader risk. "The national economy has thus far avoided falling into an energy shock recession, but ongoing bad policy choices from the White House continue to make stagflation risks more pronounced," he said. Energy prices are not the only source of inflationary pressure. Fullerton said higher tariffs have contributed at least 50 basis points to inflation in 2026. He said some businesses have chosen not to pass the full increase in tariff-related import costs on to consumers, instead accepting lower profit margins in an effort to protect market share. Economists, however, differ over how directly tariff-driven price increases translate into broader inflation. Donald J. Boudreaux, an economics professor at George Mason University, said tariffs can raise the prices of imported goods, domestically produced alternatives and products that rely on imported inputs. He cautioned that higher prices for particular goods do not necessarily translate into a measurable increase in the overall inflation rate. "My bottom line is that, whether or not tariffs cause a measured increase in inflation, they do cause many prices to rise, and they also make the country poorer by reducing consumers' and producers' access to goods and services," he told China Daily.