US inflation rises to 3.7% as gasoline prices surge, putting Fed rate outlook in focus

US consumer inflation accelerated in September as higher energy costs pushed prices up, with annual headline inflation rising to 3.7% from 3.4% in August, according to data released by the US Bureau of Labor Statistics on Wednesday.

The Consumer Price Index (CPI) rose 0.6% month-on-month, while the annual inflation rate exceeded the 3.6% forecast.

Core CPI, which excludes volatile food and energy prices, increased 2.6% year-on-year, compared with expectations of 2.5%. On a monthly basis, core inflation rose 0.3%, above the estimated 0.2%.

Energy prices drive inflation higher

Energy costs were the main driver of the increase in headline inflation. The energy index rose 5.2% during September, while gasoline prices surged 9.1%, accounting for about half of the monthly increase in the overall CPI.

Over the past year, gasoline prices have climbed 34.2%, while fuel oil prices have risen 74.2%.

Food prices were unchanged in September but increased 2.5% from a year earlier. Shelter prices rose 0.4% during the month, while prices of used cars and trucks increased 0.7%.

Apparel prices, which can be affected by tariffs, rose 0.3% month-on-month and 3.4% year-on-year.

US inflation puts Fed rate outlook in focus

The inflation report comes amid continued tensions between the US and Iran, with rising energy costs adding to price pressures ahead of the November 3 midterm elections.

The stronger-than-expected inflation readings prompted traders to reassess the US Federal Reserve's interest rate outlook ahead of its October 27-28 meeting, CNBC reported.

According to the CME Group's FedWatch tool, traders raised the probability of an interest rate hike at the October meeting to about 54%, CNBC reported.

The September CPI report is the last consumer inflation reading available to Federal Open Market Committee officials before their next meeting.

The Bureau of Labor Statistics is scheduled to release September producer price index (PPI) data on Thursday. The report will provide another measure of price pressures across the US economy.

Also Read: FIIs sell ₹1,857 crore of Indian shares, DIIs buy ₹2,670 crore as market ends lower