Higher energy prices lift US inflation before midterm elections

Higher energy prices drove up inflation in the United States in September, a warning shot to President Donald Trump before midterm elections that have centered primarily on affordability concerns. The uptick in consumer prices will also keep the Federal Reserve under pressure to raise interest rates for a second time this year.

The consumer price index report, released by the Bureau of Labor Statistics on Wednesday, showed that overall prices rose 0.6%, the largest monthly increase in five months. Compared with the same time last year, prices were 3.7% higher.

The bulk of the increase stemmed directly from energy prices, which have shot higher this year because of the war with Iran. That has translated into increased costs for Americans, who are paying more to fill their cars, heat their homes and travel by air.

Gasoline prices, which in late September rose to nearly $4.50 a gallon, surged 9.1% for the month. That accounted for more than half of the overall monthly increase in prices. Gas prices are up 34.2% over the past year.

Fuel oil prices, used for heating in many homes in the Northeast, have also shot higher, rising 15.3% in September, or 74.2% on an annual basis. Higher fuel costs have boosted airfares, which were up 1.2% in September, or 22.4% over the year.

Food prices were flat for the month, but over the past 12 months have risen 2.5%.

"Core" inflation, which excludes volatile energy and food prices, edged higher as well, but by a smaller magnitude. Over the course of September, these prices were up only 0.3%. Over the past year, they were up 2.6%.

The data comes at a highly sensitive political moment, with the midterm elections just weeks away and Republicans under pressure to retain their control of Congress. Several traditionally safe Republican seats are now in play for Democrats, who have continued to blame Trump for higher prices.

Trump has often sought to dismiss the notion that the affordability crisis has worsened under his watch. At a rally in Alaska late Tuesday, he proclaimed that prices had improved under his watch.

But September's data suggests a far bleaker backdrop.

Wage growth has remained relatively muted over the past year. That, combined with higher inflation, means Americans are earning less for an hour of work. Average hourly earnings, adjusted for inflation, fell 0.5% in September, and were down 0.7% from a year earlier. It was the sixth straight month of year-over-year declines in real earnings.

Average hourly earnings are now back to almost where they were when Trump was sworn into office for the second time in January 2025, meaning that, on average, Americans have experienced zero wage growth, in real terms, since he returned to the White House.

Democrats seized on the latest data, directing the blame squarely on Republicans and the president.

The Rev. Adam Hamilton, the Democratic candidate in the competitive Senate race in Kansas, targeted his opponent, Sen. Roger Marshall, over the spike in energy prices.

"Roger Marshall is to blame for the rising cost of fuel and inflation that's costing Kansans hundreds more a month on everything from groceries and housing to healthcare," Hamilton said in a statement, pointing to Marshall's support for the Iran war and the president's tariffs. The farming-heavy economy in Kansas has been hit hard by price increases.

Other Democratic leaders portrayed the data as an indictment of the president's policies.

"Inflation is up again. Not because of a pandemic. Not because of a natural disaster. Because of Trump's war, tariffs, and corporate tax breaks," Pete Buttigieg, the former secretary of transportation and potential 2028 presidential candidate, said on social media. "It really is this simple: Republicans took over, and then drove up the cost of living in America."

"Donald Trump's ‘Golden Age' means never ending, higher prices for the American people while he gets a ballroom and billionaires get tax cuts," Sen. Chuck Schumer, D-N.Y., the minority leader, said on social media.

In an interview with Fox Business on Wednesday, Kevin Hassett, the director of the White House National Economic Council, acknowledged that the rise in inflation was "disappointing" and pointed to the widening conflict in the Middle East, which he said had caused a "negative shock to energy again."

While the war with Iran - and the energy shock that has followed - is responsible for the bulk of the pickup in inflation, it has not been the only source of price pressures. Over the past year, Trump's tariffs have made everyday items, like household appliances, more expensive. The effect has finally started to wane but is still noticeable in some sectors. For example, prices for toys were up 4.2% in September, while apparel rose 0.3%.

Soaring costs associated with the boom in artificial intelligence investment have also pushed inflation higher. Prices for computers and related equipment have risen 9.7% over the past year, while software prices have gained 28.4%.

The AI build-out is particularly challenging for the Fed because the companies behind the boom appear undeterred by not only higher interest rates, but also soaring costs for the chips, electricity and other items that are crucial to continued growth.

Officials at the central bank pay closest attention to the core inflation measure, which they see as the best gauge of underlying inflation. They also track an even more granular metric, known as "supercore" inflation. It measures prices for core services once housing costs are excluded. For a second straight month, it came in hot, rising 0.4% in September. Over the past three months, supercore prices have risen at an annual rate of nearly 4.6%.

Last month, the Fed voted unanimously to raise rates by a quarter of a percentage point to a range of 3.75% to 4%. It was the central bank's first major step since July 2023 to contain elevated inflation. Projections released alongside the policy decision showed that 16 of the 18 officials who submitted estimates thought that rates would end the year at 4% to 4.25%.

The Fed convenes twice more before the end of the year, with the next meeting scheduled in late October, just days before the midterm elections.

In the weeks before September's CPI report, top policymakers appeared to have coalesced around a view that the Fed did not need to raise rates at consecutive meetings at this juncture to tame inflation, dimming odds of an October move. Officials are unlikely to abandon that approach in the wake of Wednesday's release, but the hotter-than-expected pace of inflation will force them to explain why moving gradually is appropriate when price pressures are picking up.

The two-year Treasury yield, which is sensitive to changes in policy expectations, rose sharply by 0.1 percentage point to 4.88% in the immediate aftermath of the report. Traders in federal funds futures still expect the next rate increase at the Fed's final gathering of the year in December, although the odds that the central bank would take action this month jumped to 43% from 24% on Tuesday.

The need for further increases will depend on how quickly inflation eases, as policymakers expect in 2027. In an interview with Bloomberg on Tuesday, John C. Williams, who as president of the Federal Reserve Bank of New York is vice-chair of the policy-setting committee, said that while he still saw one more rate increase as appropriate this year, he did not expect further adjustments to be necessary after that.

This article originally appeared in The New York Times.

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