WASHINGTON, Oct 14 (Reuters) - US consumer prices likely surged in September, driven by rising gasoline and food costs, and adding to a string of unfavorable developments for President Donald Trump and his Republican Party heading into crucial November 3 midterm elections.
The Labor Department's Consumer Price Index report on Wednesday will follow in the wake of surveys showing a deterioration in consumer sentiment and a decline in Trump's approval rating amid frustration over the rising cost of living.
A Reuters/Ipsos poll showed about 78% of Americans blamed Trump's policies, including tariffs on imports and the US-Israeli war with Iran, for rising prices, which are outpacing wages. The CPI report is, however, expected to show a moderate increase in prices outside the volatile food and energy components over September, and further reduce the urgency for the Federal Reserve to raise interest rates again this month.
Economists said the slowdown in the monthly so-called core CPI inflation was of little comfort to consumers, especially those at the bottom of what they call the K-shaped economy.
"People care about food and energy. That's what they feel every day," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. "Many voters are at the lower leg of the K-shaped economy. They are suffering because of higher energy and food prices, and I assume that will have an impact on the election results, as a lot of people seem to think."
The CPI likely increased 0.6% last month after climbing 0.4% in August, a Reuters survey of economists predicted. Some estimated that gasoline could add roughly three-tenths of a percentage point to the CPI. Gasoline prices soared 7.1% in September, data from the US Energy Information Administration showed. Food prices are expected to have risen at least 0.2% after two straight monthly gains of 0.1%.
In the 12 months through September, the CPI is forecast to have increased 3.6% after rising 3.4% in August. The US central bank tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target.
The September CPI inflation report will be keenly awaited by millions of retirees and other Social Security recipients trying to figure out how much their benefits will increase next year. The Social Security Administration uses the CPI for Urban Wage Earners and Clerical Workers data from the third quarter of 2025 to the third quarter of 2026 to determine the annual cost-of-living adjustment for Social Security and Supplemental Security Income benefits for 2027.
The programs benefit older Americans who have retired as well as the disabled and certain widows, widowers and children. The Senior Citizens League, one of the nation's biggest seniors groups, is projecting a 3.5% COLA raise in 2027. That would be up from 2.8% in 2026, and would lift the average monthly benefit for retirees by $67.90 to $2,007.
ENERGY PRICES SHOCK
The energy price shock is being closely watched for signs of broadening out beyond the transportation sector. Some economists said more expensive energy products were yet to become embedded into inflation, citing moderate increases in the core CPI. Others warned record high diesel prices, with no end in sight to the Middle East conflict, would soon feed through to higher prices at the supermarket. They pointed to elevated readings in the price measures in business surveys.
Excluding the volatile food and energy components, the CPI is expected to have gained 0.2% in September after climbing 0.3% in August. The anticipated moderation in core CPI inflation over the month would reflect the fading boost from a jump in mobile phone prices related to service changes at AT&T, though an above-expectations increase could not be ruled out. Other service providers raised their fees in September.
Airline fares likely increased further because of rising jet fuel prices. Moderate rises are expected for rents. Goods prices likely rose marginally as the impact of tariffs unwinds.
In the 12 months through September, core CPI inflation is forecast to have increased 2.5% after advancing 2.4% in August. This measure is lagging core PCE inflation, which increased 3.0% in August, because of the different weights assigned to the components in the baskets.
The Fed last month raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range, the first hike in three years, and flagged further increases in borrowing costs in the months ahead. Financial markets assigned a roughly 22% chance of a rate hike at the October 27-28 policy meeting, CME's FedWatch Tool showed.
The odds of a rate increase this month were diminished by the underwhelming payroll gains in September as well as cooler-than-expected PCE inflation readings for July and August. Economists expect the Fed to raise rates in December.
"If the monthly core CPI rise manages to stay in the 0.2% range in September, that should be good enough for the Fed to hold in October," said Scott Anderson, chief US economist at BMO Capital Markets. "However, it won't settle the debate about whether more rate hikes are needed down the road."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci )
