Inflation in the United States accelerated in September, with consumer prices rising 3.6% from a year earlier, marking an increase from 3.4% in August, according to the Commerce Department. On a monthly basis, prices climbed 0.5%, the largest monthly gain since May, signaling persistent upward pressure on costs ahead of the midterm elections.
Much of the recent inflation rise was driven by higher gasoline prices, which increased amid renewed violence in the Middle East that pushed oil prices above $100 a barrel, compared to levels below $70 before the conflict. However, inflation was not limited to energy costs. Prices for various services—including shipping, hotel accommodations, and utilities—also experienced notable increases from August to September, reflecting a broader and more entrenched inflationary environment.
Economist Ksenia Bushmeneva of TD Bank noted that inflation pressures are intensifying. She highlighted that while elevated gasoline prices contribute significantly to headline inflation, underlying price increases are becoming more widespread. Core inflation, which excludes volatile food and energy categories, rose 3.1% year-over-year in September, slightly up from 3% the previous month. Monthly core prices increased by 0.3% for the second consecutive month.
The rise in inflation has been a growing concern for American voters, according to polling data, impacting opinions about the state of the economy and President Joe Biden’s handling of rising prices. The cost of living has emerged as a central issue in the midterm elections, with inflation’s strain on household budgets evident in energy prices that currently average around $4.25 per gallon, despite campaign promises to lower those costs.
On the economic growth front, the Commerce Department reported that the U.S. economy expanded at an annual rate of 3.4% in the July-September quarter. This pace of growth is considerably faster than the 2.2% rate seen in the second quarter and was driven by a surge in consumer spending and increased business investment, including expenditures related to artificial intelligence infrastructure. Consumer spending grew at a 3.8% annual rate in the third quarter, the second consecutive quarter of robust growth after a modest 0.7% rise in the first quarter.
Despite the economic expansion, some indicators suggest consumer spending may face headwinds going forward. Inflation-adjusted disposable income fell 0.3% in September, raising concerns that many households are relying more on savings or credit to maintain their consumption levels. Bushmeneva warned that higher borrowing costs combined with these pressures could dampen consumer demand in upcoming quarters.
The inflation data are based on the personal consumption expenditures (PCE) price index, which the Federal Reserve monitors closely due to its methodological differences from the consumer price index, including less emphasis on housing costs and allowance for changes in consumer purchasing behavior. The timing of this data release comes one day after the Federal Reserve opted to keep its key interest rate unchanged. However, the combination of strong economic growth and persistent inflation raises the likelihood of further interest rate increases when the Fed meets again in December, which could lead to higher borrowing costs for consumers and businesses across the economy.