Inflation Accelerates to 3.7% in September, Final CPI Report Before Midterms
U.S. consumer prices rose 3.7% year-over-year in September, up from 3.4% in August, as the Iran war pushed gas prices higher and the AI buildout raised semiconductor and electronics costs. The report lands weeks before midterm elections dominated by affordability concerns.
U.S. inflation accelerated last month, with consumer prices rising 3.7% in September compared with a year earlier, up from 3.4% in August, according to the Labor Department. The reading, released Wednesday, marks the final consumer price index report before the midterm elections and underscores how stubbornly high costs remain a central economic and political challenge.
On a monthly basis, prices jumped 0.6% from August to September, the biggest gain in five months and up from a 0.4% increase the previous month. The figures reflect the lingering impact of the Iran war on gas prices and the persistence of inflation, which has fallen sharply from a 9.1% peak in 2022 but has ticked higher since the war began in late February.
Gas prices rose about 9% from August to September, a major driver of the overall increase. Prices at the pump averaged $4.34 a gallon nationwide Tuesday, up a few cents from a month earlier, though they have edged lower in recent weeks. The war's disruption to oil and gas supplies has also pushed up air fares by roughly 23% from a year ago.
Core prices, which exclude volatile food and energy categories, rose 2.5% year-over-year, up slightly from 2.4% in August. That is closer to the Federal Reserve's 2% target but has remained largely stuck at that level since January, just before the war began. Core prices rose just 0.2% month-over-month.
The inflation surge is not limited to energy. Surging investment in data centers and artificial intelligence has sharply elevated the cost of semiconductors, computer equipment, and electrical components, with those expenses passed on to consumer electronics. Nintendo raised the price of its Switch 2 gaming system by 11% to $499.99 on September 1, and Apple's newest iPhone, the iPhone 17, costs about 10% more than its previous upgrade, though some of that reflects greater capabilities.
Businesses are also contending with higher fuel, aluminum, and food ingredient costs. Last week, PepsiCo said it will raise prices for snack foods including Doritos, Ruffles, Sun Chips, and some sodas to offset those expenses. Higher shipping and operating costs are forcing many large and small businesses to pass expenses to consumers.
The report lands as elevated inflation poses political problems for Republicans in Congress and creates a challenge for the Federal Reserve, which is required by Congress to seek stable prices. A poll by The Associated Press-NORC Center for Public Affairs Research found that just 17% of U.S. adults approve of President Trump's handling of the cost of living, while only 26% approve of his handling of the economy overall, a new low.
Fed Chairman Kevin Warsh said last month that inflation isn't moving quickly enough back to the central bank's target, prompting the Fed to hike rates for the first time in three years, to about 3.9%. «The plain fact is that inflation is too high and has been for too long,» Warsh said at a news conference. Inflation reports over the summer «do not tell me that underlying trends have meaningfully improved,» he added.
Some key Fed officials have suggested the central bank can wait before increasing rates again. The Fed has a policy meeting scheduled for October 27-28, but most Wall Street investors expect it to hold rates then and potentially implement another hike in December. Fed officials have penciled in just one more rate hike this year.
By raising borrowing costs, the Fed hopes to slow spending and growth and cool price increases. Yet much of the current inflation stems from supply shocks, such as the Iran war's disruption to oil and gas supplies, and higher interest rates cannot address those bottlenecks. Warsh has said his goal is to keep the gas price spike from seeping into more areas of the economy.
Rising gas costs are a highly visible sign of inflation and often drive down measures of consumer sentiment about the economy. With the midterms just weeks away, the latest CPI report is likely to keep affordability concerns at the forefront of voters' minds.
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