US inflation hotter than expected

By the Editorial Team · Thursday, October 15, 2026

U.S. Treasury yields rose after consumer prices increased by 3.7 percent annually in September, surpassing expectations due to a sharp rise in energy costs amid Middle Eastern market disruptions. This stronger inflation reading has heightened market bets on further Federal Reserve rate hikes, with a 50 percent chance of an increase at the upcoming October meeting.

U.S. government borrowing costs increased following the release of consumer price inflation data showing a larger-than-expected rise in September. According to the Bureau of Labor Statistics, overall prices rose 3.7 percent over the year ending in September, up from 3.4 percent in August and surpassing analysts' forecasts of a 3.6 percent annual increase. The uptick was largely driven by a sharp surge in petrol and energy prices amid ongoing disruptions in Middle Eastern energy markets linked to the conflict in Iran.

On a monthly basis, petrol prices rose 9.1 percent, while fuel oil prices jumped 15.3 percent. Year-over-year, these energy categories increased by 34.2 percent and 74.2 percent respectively. The higher inflation reading contributed to a rise in Treasury yields, with the benchmark 10-year U.S. Treasury yield increasing by 0.08 percentage points to 5.3 percent. The two-year Treasury yield, which reflects expectations for Federal Reserve interest rate policy, climbed 0.13 percentage points to 4.92 percent.

While energy costs remain a significant factor, economists noted that inflation was becoming more broad-based rather than concentrated solely on energy-sensitive products. Stephen Brown, chief North America economist at Capital Economics, said the larger-than-expected increase in core inflation—consumer prices excluding food and energy—suggested persistent underlying price pressures. Core inflation rose to 2.6 percent annually in September from 2.4 percent in August, and showed a monthly increase of 0.3 percent, above the 0.2 percent anticipated by analysts.

Market expectations for further Federal Reserve rate hikes appeared to increase after the data release. The CME FedWatch tool indicated a 50 percent probability that the central bank will raise the federal funds rate at its upcoming meeting on October 28, potentially pushing the target range to 4 percent to 4.25 percent. This would follow the Fed's September rate increase, the first in three years.

European bond markets also reacted to the U.S. inflation figures, with yields on government debt climbing after initially trading lower on the day. The yield on the UK’s 10-year gilt edged up to 5.46 percent, while the French and German benchmark yields moved higher as well. The British pound weakened by 0.5 percent against the U.S. dollar to $1.32, reflecting concerns over potential Fed tightening. Nonetheless, sterling remained near an 18-month peak against the euro, trading at €1.18.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.