US September CPI Preview: High Oil Prices Likely to Push Up Headline Inflation; Moderate Core Inflation May Ease Urgency for Rate Hikes

Driven by rising gasoline and food prices, U.S. consumer prices likely rose sharply in September, adding more bad news for President Donald Trump and Republicans ahead of the key November 3 midterm elections. The Labor Department will release the Consumer Price Index (CPI) report at 8:30 p.m. Beijing time on Wednesday. Economists forecast that September CPI rose 0.6% month-on-month, compared with a 0.4% increase in August. September CPI is expected to rise 3.6% year-on-year, up from 3.4% in August. The Federal Reserve tracks the personal consumption expenditures (PCE) price index and uses it as a reference gauge for its 2% inflation target. Earlier surveys showed that consumer confidence deteriorated amid dissatisfaction over the rising cost of living, and Trump's approval rating fell. Polls show that about 78% of Americans blame Trump's policies for rising prices, including import tariffs and the U.S.-Israel and Iran war; price increases are outpacing wages. However, the September CPI report is expected to show that prices for other goods rose moderately after stripping out volatile food and energy prices, which would further reduce the urgency for the Fed to raise rates again this month. Food and energy prices rise Economists said the slowdown in monthly core CPI inflation offers little comfort to consumers, especially those at the bottom of the so-called "K-shaped economy." "People care about food and energy. That's what they feel every day," said Sung Won Sohn, professor of finance and economics at Loyola Marymount University. "Many voters are in the lower half of the K-shaped economy. They are suffering because of higher energy and food prices, and I think that will affect the election outcome, and many people seem to think so too." Some economists estimate that gasoline may have contributed about 0.3 percentage point to September CPI. Data from the U.S. Energy Information Administration showed that gasoline prices surged 7.1% in September. Food prices are expected to rise at least 0.2%, after rising 0.1% for two consecutive months. The September CPI report will be closely watched by millions of retirees and other Social Security recipients as they try to estimate how much their benefits will increase next year. The Social Security Administration uses CPI data for urban wage earners and clerical workers from the third quarter of 2025 through the third quarter of 2026 to determine the annual cost-of-living adjustment (COLA) for Social Security and Supplemental Security Income benefits in 2027. These programs benefit older retired Americans, as well as people with disabilities, certain widows, widowers and children. The Senior Citizens League, one of the largest senior advocacy groups in the United States, expects the 2027 COLA to be 3.5%, up from 2.8% in 2026, which would increase the average monthly benefit for retirees by $67.90 to $2,007. The impact of the energy price shock is being closely watched for signs of whether it is spreading beyond transportation. Some economists said more expensive energy products have not yet become embedded in inflation, citing moderate core CPI gains. Others warned that record-high diesel prices and no end in sight to the Middle East conflict will soon pass through to supermarket prices. They pointed to elevated readings in price indicators in business surveys. Core inflation expected to be moderate Excluding volatile food and energy, September CPI is expected to rise 0.2% month-on-month, compared with a 0.3% increase in August. Core CPI inflation is expected to have slowed in September, reflecting the fading boost from a jump in mobile phone prices caused by AT&T service changes, although a larger-than-expected increase cannot be ruled out. Other service providers also raised fees in September. Airfares may rise further due to higher jet fuel prices. Rents are expected to rise moderately. Goods prices may edge up as the impact of tariffs fades. For the 12 months through September, core CPI inflation is expected to rise 2.5%, up from 2.4% in August. This measure lags core PCE inflation, which rose 3.0% in August, due to different weights of components in the basket. Expectations for a Fed rate hike in October cool The Fed raised its overnight benchmark rate by 25 basis points last month to a range of 3.75%-4.00%, the first increase in three years, and signaled further increases in borrowing costs in the coming months. CME's FedWatch tool shows that financial markets see about a 22% probability of a rate hike at the October 27-28 policy meeting. Disappointing September nonfarm payroll growth and lower-than-expected PCE inflation in July and August weakened the case for a rate hike this month. Economists expect the Fed to raise rates in December. "If September core CPI can stay in the 0.2% month-on-month range, then the Fed should be able to keep rates unchanged in October. However, that does not end the debate over whether further rate hikes are needed in the future," said Scott Anderson, chief U.S. economist at BMO Capital Markets.