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The rate of price growth accelerated to 3.7%, rising from the 3.4% recorded in the 12 months ending in August.
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What causes inflation?
Several different factors can drive inflation upward.
When demand for a product exceeds its available supply, producers may raise prices; the recent craze for Labubu dolls and their high resale values serve as a clear example.
Increased income levels can also drive higher demand, which subsequently pushes prices up.
Supply and demand: Labubu dolls illustrate how inflation can rise
Supply constraints can also influence inflation. If the supply of a commodity drops while demand remains steady, prices typically rise. Crude oil, which is essential for producing diesel and gasoline, is a prime example.
Prior to the start of the US-Israel conflict with Iran, oil traded at just over $70 per barrel. However, as the conflict restricted crude supplies, the price climbed rapidly and is currently exceeding $100.
What is the current rate of inflation?
Inflation reached 3.7% in the year through September, a higher-than-expected jump driven primarily by gasoline costs.
Prices for vehicle fuel surged by 34.2% over the 12-month period.
According to the Bureau of Labor Statistics, fuel prices rose by 9.1% in September alone, contributing to more than half of the total inflation increase.
Overall, energy inflation rose by 20.4% over the year as electricity, energy services, and fuel oil prices climbed. Fuel oil, which is used for home heating, saw a 74.2% increase over the year.
Experts noted that the US Federal Reserve, which determines the nation’s interest rates, will be monitoring whether these energy costs begin to spill over into other sectors, such as food, and push inflation even higher.
Currently, food inflation remains relatively stable. It showed no change in September and stood at 2.5% for the year.
Core inflation, which excludes volatile food and energy prices, was 2.6%.
Will the inflation hike change Social Security payments?
Shortly after the latest inflation data was released, the Social Security Administration announced that benefits—including disability, survivors, and old-age insurance—would increase by 3.6% in 2027.
The administration stated that this 3.6% adjustment will result in an average monthly increase of $75 for retirement benefits.
This cost-of-living adjustment will take effect in January for approximately 72 million people, while the 7.2 million recipients of supplemental security income will see their increased payments begin on 31 December.
How have tariffs affected inflation?
Since beginning his second term, President Donald Trump has implemented tariffs on most of America’s global trading partners.
Although the Supreme Court struck down most of the initial global levies in February, the president immediately introduced a new 10% global tariff to take their place.
Trump has argued that these tariffs would boost manufacturing, encourage the purchase of US-made products, and increase tax revenue. However, research from the Federal Reserve Bank of New York suggests these higher import taxes have also influenced inflation.
US President Donald Trump raised tariffs
Higher tariffs—levies paid by businesses on imported goods—directly increase prices for US companies unless overseas suppliers lower their prices to absorb some of the cost.
The New York Fed discovered that in response to these new tariffs, exporters reduced their prices very little, meaning US businesses ended up covering nearly 90% of the added tax burden.
Indirectly, these tariffs also impacted the prices of domestically produced goods, as many US manufacturers rely on materials or parts
Overall, the Fed found that every one-percentage-point increase in average tariffs resulted in a nearly 0.25% price hike for consumer goods after one year.
Has inflation been worse lately?
While current inflation remains above the Federal Reserve’s 2% target, it has been significantly higher in previous years.
During the Covid pandemic, factors such as supply chain disruptions began driving inflation upward.
Furthermore, when Russia launched its full-scale invasion of Ukraine in early 2022, oil prices spiked to over $100 per barrel.
Both of these events contributed to inflation peaking at approximately 9%.
Can inflation ever go down?
It is important to understand that if inflation is rising at a slower rate, it does not mean prices are decreasing; it simply means they are growing at a more moderate pace.
A modest amount of inflation is generally viewed as beneficial for the economy, as reflected in the Federal Reserve’s target rate.
Many central banks consider inflation of around 2% or slightly higher to be stable, as it does not significantly disrupt consumer purchasing decisions.
If inflation falls too low, consumers might delay spending in anticipation of further price drops or slower growth. This can lead businesses to cut wages or reduce staff to compensate for the decline in demand.
