U.S. inflation accelerated in September as higher energy costs pushed up prices for goods and services, adding pressure on the Federal Reserve as officials assess whether interest rates need to rise again.
Prices increased 3.6% from a year earlier, up from 3.4% in August, the Commerce Department reported Thursday. On a monthly basis, prices rose 0.5%, the largest monthly increase since May. The figures came one day after the Fed voted 10-2 to keep its benchmark interest rate in a range of 3.75% to 4%.
Energy remains a major driver
Energy prices have risen sharply since the war with Iran began in February, lifting the cost of oil, gasoline and diesel. Oil has remained above $100 a barrel for most of that period, apart from a brief interval during the summer when a ceasefire was in place, according to the information released with the inflation data.
Those higher energy costs have also increased transportation expenses and contributed to broader price gains. Goods prices rose 3.9% in September compared with the same month last year, while service prices increased 3.5%.
- Overall prices rose 3.6% year over year in September.
- Monthly inflation reached 0.5%, the highest rate since May.
- Core prices, excluding food and energy, rose 3.1% from a year earlier and 0.3% from August.
Core inflation also moves higher
The data showed that price pressures extended beyond energy. Core inflation, which excludes food and energy because those categories can be volatile, rose 3.1% from a year earlier. That measure also increased 0.3% from August, remaining above the Federal Reserve’s 2% inflation goal.
Prices for durable goods, including motor vehicles and laptops, increased during the month. Some services also became more expensive, including air travel and hotel stays. The breadth of the increases raised concerns that higher fuel costs are filtering into other parts of the economy.
“The US still has an inflation problem and it's getting worse again. Inflation is back near a 3-year high. It's largely due to war in Iran, but there's legitimate concern that inflation is spreading beyond energy.”
— Heather Long, chief economist at Navy Federal Credit Union
Fed faces stronger growth and higher prices
The inflation figures arrived as the economy continued to expand. The Commerce Department also reported Thursday that economic growth in the third quarter was the fastest in a year. Consumer spending remained strong, while businesses increased investment in artificial intelligence despite higher oil prices.
Federal Reserve Chairman Kevin Warsh said after Wednesday’s meeting that the economy was strong but that more work remained on inflation. Warsh said he did not view current economic conditions as restrictive. The two dissenting Fed officials favored raising interest rates at the meeting rather than waiting until December.
The latest price data are likely to influence the debate ahead of the Fed’s December meeting. The central bank has said that additional economic information will guide its policy decisions while inflation remains above its target.
