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A sign displays the prices of unleaded gasoline and diesel fuel as a driver refuels a vehicle with diesel fuel at a G&M gas station in Torrance, California, on Sept. 28, 2026.<\/p>\n
Caroline Brehman | Bloomberg | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
The inflation rate increased in September<\/a> on the back of higher gasoline and energy prices amid the Iran war, further squeezing households’ budgets and perhaps putting pressure on the Federal Reserve to raise interest rates, economists said.<\/p>\n The consumer price index rose by 3.7% in September from 12 months earlier, the Bureau of Labor Statistics reported<\/a> Wednesday. That’s up from a 3.4% annual pace<\/a> in August. <\/p>\n Economists may be more concerned about the reading for “core” CPI, a measure that strips out food and energy prices, which can be volatile, and is often used to examine underlying inflation dynamics in the U.S. economy. That reading jumped to 2.6% in September from 2.4% in August. <\/p>\n “The overall report shows inflation is uncomfortably strong,” said Mark Zandi, chief economist at Moody’s. <\/p>\n “The war’s fingerprints are all over the report,” he said. “It’s driving a lot of the inflationary pickup.”<\/p>\n<\/div>\n The inflation reading comes less than a month before the upcoming midterm elections, in which affordability is widely seen as a primary issue for voters<\/a>. <\/p>\n In addition to rising prices for goods and services, Treasury bond yields have increased sharply in recent months<\/a>, putting upward pressure<\/a> on rates for mortgages, auto loans and other types of consumer debt. <\/p>\n The Fed \u2014 the U.S. central bank, which uses interest-rate policy as a lever to control the trajectory of inflation \u2014 may choose to increase its benchmark interest rate at upcoming policy meetings to rein in persistently high inflation, economists said. That benchmark rate has a direct impact on credit card rates<\/a> and influences other borrowing costs, too. <\/p>\n<\/div>\n The central bank aims for a long-term annual inflation target around 2%. Inflation has been above that target for more than five years.<\/p>\n Wednesday’s CPI report “gives more support to the argument that the Fed is going to continue raising rates,” Zandi said. <\/p>\n Inflation pressures will likely push the Fed to hike rates between now and spring 2027, according to a Wells Fargo Investment Institute analysis<\/a> published Tuesday.<\/p>\n<\/div>\n Barometers of consumer sentiment have plunged to multiyear lows<\/a> amid rising prices. The University of Michigan’s index of consumer sentiment sunk to its second-lowest reading on record<\/a> in September. <\/p>\n “Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year,” University of Michigan Surveys of Consumers Director Joanne Hsu said<\/a> of the data.<\/p>\n The Social Security Administration on Wednesday announced a 3.6% cost-of-living adjustment<\/a> for benefits in 2027. The Social Security COLA calculation is based on a subset of the consumer price index, known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.<\/p>\n However, a recent AARP survey<\/a> found 76% of respondents said a 3.5% COLA would not be enough<\/a>.<\/p>\n<\/div>\n The Iran war \u2014 which began at the end of February, when the U.S. and Israel launched strikes on Iran \u2014 has pushed up oil prices. <\/p>\n In turn, prices for fuels like gasoline, diesel and jet fuel, which are refined from crude oil, have also increased, generating higher costs across the U.S. economy, economists said. <\/p>\n Inflation is an “oil story,” said Michael Reid, head of U.S. economics at the Royal Bank of Canada. “That’ll be the story for a few more months.”<\/p>\n<\/div>\n The war severely crimped oil flowing through the Strait of Hormuz, a key transit artery in the Middle East through which a large volume of the global oil supply passes. The conflict has damaged the region’s refining infrastructure and restricted supplies of other materials like fertilizer, putting upward pressure on global food prices. <\/p>\n Russia’s war in Ukraine has also contributed to higher diesel prices, largely because Kyiv has bombed Russian refineries, economists said.<\/p>\n “Crude oil is moving through the Strait of Hormuz but remains below its pre-war pace. Even after key waterways fully reopen, lost refining capacity and distribution problems may delay lower energy prices until mid-2027,” according to the Wells Fargo Investment Institute analysis<\/a>.<\/p>\n<\/div>\n‘Frustration’ over cost of living<\/h2>\n
Impact of the Iran war, oil prices on inflation<\/h2>\n