Economist breaks down September 2026 inflation report.
Inflation picked up speed in September as consumer prices climbed higher, driven largely by rising energy costs.
The Bureau of Labor Statistics (BLS) reported on Wednesday that the consumer price index (CPI)—a comprehensive gauge tracking the cost of everyday items like gasoline, groceries, and rent—rose 0.6% for the month and is up 3.7% compared to a year ago.
Expectations vs. reality
The monthly increase matched the forecasts of economists surveyed by LSEG, while the annual rate exceeded the 3.6% estimate. The monthly pace accelerated from the 0.4% recorded in August, and the annual figure also climbed from the previous month’s 3.4% reading.
So-called core prices, which strip out volatile food and energy costs to better measure underlying trends, rose 0.3% monthly and 2.6% annually. Both metrics surpassed the expectations of economists polled by LSEG, who had anticipated a 0.2% monthly rise and a 2.5% annual increase.
The monthly core figure showed a slight cooling from August’s 0.3% rise, while the annual rate increased from the 2.4% reported in the prior month.
US ECONOMY GREW AT A FASTER PACE THAN EXPECTED IN SECOND QUARTER
The cost of living breakdown
Persistent inflation has placed significant financial strain on most U.S. households in recent years, forcing families to pay more for essential goods like rent and groceries. These price hikes are particularly burdensome for lower-income Americans, who must dedicate a larger portion of their limited budgets to necessities and have less room to save.
Energy costs jumped 5.2% in September and are up 20.4% over the last year. This follows a 2.1% monthly increase seen in August.
Gasoline prices surged 9.1% from the previous month and are 34.2% higher on an annual basis. The BLS noted that the gasoline index was responsible for more than half of the total monthly increase in the headline CPI. Electricity prices rose 0.2% for the month and are up 4.4% over the past year.
Inflation rose more than expected in September.
WHY THE FED ISN’T READY TO DECLARE VICTORY ON INFLATION
Food prices remained flat in September and are 2.5% higher than a year ago. The index for food at home dipped 0.1% for the month but is up 1.8% annually. Meanwhile, the index for food away from home rose 0.2% and is up 3.5% from last year.
The index for meats, poultry, and fish fell 0.4% in September, though it remains 2.2% higher than a year ago. Beef and veal prices dropped 1% for the month but are up 3.5% annually. Egg prices decreased 1.3% in September and are down 20.6% from last year as supply levels stabilize.
The fruits and vegetables index rose 0.5% in September and is up 3.7% from a year ago. Coffee prices climbed 0.9% for the month and are 7.1% higher compared to last year.
Housing costs increased 0.4% month-over-month and are 3.2% higher than a year ago. Expenses for tenants’ and household insurance rose 0.2% for the month and are up 3% from last year.
The transportation services index showed a 0.6% monthly increase and is up 2.7% annually. Airline fares rose 1.2% in September and are 22.4% higher than last year.
FEDERAL RESERVE HIKES INTEREST RATES FOR FIRST TIME SINCE 2023 AMID STUBBORN INFLATION
What experts are saying
Vanguard senior economist Adam Schickling said that the “latest <a ve been saying for several months: inflation is proving more persistent than many expected, particularly across services. While energy remains a factor, the more important story is that demand has stayed remarkably resilient."
“We’re entering a phase where stronger productivity, moderating wage growth, and more price-sensitive consumers should help bring inflation lower, but patience will be required,” Schickling added.
Tim Urbanowicz, chief investment strategist for innovator ETFs at Goldman Sachs Asset Management, said that “today’s print puts the Fed’s tactical breather priced into the market for October in question.”
“With $100-plus crude adding friction to already sticky core prices, the latest data increasingly complicates the disinflation narrative and may limit the Fed’s flexibility,” Urbanowicz added.
What does it mean for the Fed?
The Federal Reserve is scheduled to hold its next monetary policy meeting on October 27-28, and market expectations regarding interest rates have shifted toward a potential hike.
According to the CME FedWatch tool, the probability of the Fed maintaining the benchmark federal funds rate at its current target range of 3.75% to 4% dropped from 77.9% on Tuesday to 58.5% on Wednesday following the release of the September CPI report.
The likelihood of a 25 basis point rate increase climbed from 22.1% yesterday to 41.5% on Wednesday.
How did the market respond?
The S&P 500 Index declined 0.95% during Wednesday morning trading.
The Dow Jones Industrial Average fell 0.13%, while the Nasdaq Composite dropped 1.42%.
