Inflation jumps to 3.7% as gasoline drives over half the rise

The Consumer Price Index rose 0.6% in September on a seasonally adjusted basis and 3.7% over the year, according to the BLS release published October 14. The annual rate was 3.4% in August. Gasoline did most of the work. Its index rose 9.1% in the month, and the BLS said it accounted for over half of the monthly increase. In August the gasoline share was a little over a third.

Over the year, gasoline is up 34.2% and the energy index is up 20.4%. AAA reported a September national average of $4.33 a gallon, which it called a record for the month by 50 cents. The Fed’s own minutes trace the move to “disruptions to oil shipments from the Middle East.” Brent crude settled near $110 a barrel on October 16.

The core is moving too

The part of the report that matters more for policy is the core. Prices excluding food and energy rose 0.3% on the month and 2.6% over the year. That is up from 2.4% in August, which was the lowest core rate since March 2021. Economists had expected 3.6% on the headline and a 0.2% monthly core gain, so both measures came in a tenth above forecast. Shelter is up 3.2% over the year and food is up 2.5%.

An energy shock that stays in the headline long enough starts to show up in the core. September is the first month where that happened.

Where it lands on a community balance sheet

Markets read the report as a case for another hike. The 10-year Treasury yield closed at 5.19% on release day, according to the Fed’s H.15 data. Futures pricing for an October increase rose sharply the same morning. It fell back after Chair Kevin Warsh told an audience in Bangkok on October 16 that “I don’t prejudge meetings.” Average hourly earnings rose 3.0% over the year in September. Prices are now rising 0.7 percentage points faster than pay.