The Consumer Price Index rose in September at an annual rate of 3.7%, outpacing forecasts, driven largely by a 9.1% jump in gasoline prices, the Bureau of Labor Statistics reported Wednesday.
Core Price Measures Edge Higher
Excluding food and energy, the CPI increased 2.6% year-over-year, up from 2.4% in August, indicating that higher energy costs are spilling into broader consumer goods.
Fuel oil prices surged 15.3% in September and are up 74.2% compared with September 2025, further pressuring transportation costs.
Transportation services rose 0.6% last month, 0.1 percentage point higher than in August, for a 2.7% gain since September 2025, according to the BLS.
Consumer Outlook and Policy Signals
A survey by the Federal Reserve Bank of Cleveland shows households now expect inflation to average about 2.7% over the next decade, the highest outlook since July 2007. The poll reflects growing anxiety among consumers about the durability of price increases.
Fed Governor Christopher Waller warned that the recent acceleration could push consumers, investors and price-setting firms to raise their inflation expectations. He emphasized that anchoring expectations remains a top priority for the central bank.
Traders using CME Group’s FedWatch tool raised the probability of a rate hike at the Oct. 28 meeting to 37% from 22% the day before. The tool aggregates futures prices to infer market expectations, and the jump signals heightened concern about near-term policy action.
Eroding Confidence and Persistent Inflation Expectations
Consumer confidence in the Federal Reserve’s ability to curb price pressures has declined this year. Policymakers have found it difficult to consistently move inflation toward the 2% target. Inflation has outpaced wage growth, turning affordability into a central political concern ahead of the November 3 mid-term elections.
Fed officials monitor inflation expectations closely, noting that public sentiment can become self-fulfilling. Recent surveys from the Conference Board, the New York Fed, and the University of Michigan all indicate households anticipate continued price pressures.
Political and Market Reactions
“Inflation is cooking with gas,” Jamie Cox of Harris Financial Group wrote. He added that the source of the inflation impulse is clear, but two wars need to end before any relief arrives.
