U.S. inflation accelerated in September, with rising gasoline prices and more expensive goods and services putting additional pressure on American households ahead of the midterm elections, according to data released by the Labor Department on Wednesday.
The Consumer Price Index (CPI), which measures changes in the prices consumers pay for goods and services, increased by 3.7% over the 12 months ending in September, up from 3.4% in August. On a monthly basis, prices rose by 0.6%, marking the largest increase in five months, compared with 0.4% in August.
The latest figures highlight the continuing economic impact of the war involving Iran, which has disrupted energy markets and driven up fuel costs since late February. However, higher oil and gas prices are not the only factors contributing to inflation, as growing demand for artificial intelligence infrastructure has also increased the cost of computer chips and electronic devices.
Inflation remains a major challenge for President Donald Trump’s administration and Republican lawmakers as voters prepare for the midterm elections, with the rising cost of living emerging as a key political concern.
Core inflation, which excludes the more volatile food and energy categories, also accelerated. Core prices increased by 2.6% compared with September last year, up from 2.4% in August. On a monthly basis, they rose by 0.3%, a pace that remains above the Federal Reserve’s long nterm inflation target of 2%.
Bill Adams, chief U.S. economist at Fifth Third Bank, described the report as worse than expected, noting that price increases were spreading across several parts of the economy.
He said consumer demand appeared stronger than some surveys had suggested, allowing businesses to continue raising prices.
The figures are particularly significant because they represent the last major inflation report before the upcoming midterm elections. An Associated Press NORC Center for Public Affairs Research poll found that only 17% of U.S. adults approved of Trump’s handling of the cost of living, while 26% approved of his overall management of the economy.
Rising prices are also affecting Americans’ purchasing power. The Labor Department reported that inflation adjusted average weekly earnings declined in September compared with a year earlier, marking the first annual drop since May.
Gasoline prices were among the biggest contributors to the increase, rising by 9.1% between August and September. Higher fuel costs also pushed up other expenses, with airline fares increasing by 1.2% during the month and standing 22% above their level a year earlier. Hotel prices climbed by 2% in September and were 4.4% higher than a year ago.
Some households received limited relief from grocery prices, which declined by 0.1% in September. Grocery prices were still 1.8% higher than a year earlier, while ground beef prices fell by 0.8% during the month but remained 5.4% above their level last year.
The government also reported sharp monthly increases in the prices of toys, new and used vehicles, sporting goods and shoes.
Meanwhile, Social Security recipients are expected to receive a 3.6% cost of living adjustment, intended to help benefits keep pace with rising prices.
Businesses are also facing higher operating expenses as conflicts in the Middle East and the Russia-Ukraine war contribute to rising diesel prices. Because diesel powers many long distance freight trucks, higher fuel costs can increase transportation expenses and eventually push up prices for consumers.
Ralph Newhouse, chief executive of Chefman, a company that manufactures kitchen appliances, said further increases in diesel prices could force the business to raise its prices in the coming months.
The New Jersey based company produces appliances, including air fryers, blenders and milk frothers, in China. It has used $20 million in tariff refunds to help offset rising fuel costs but may have limited room to continue absorbing the additional expenses.
The inflation report has also increased uncertainty over the Federal Reserve’s next interest rate decision. The central bank uses interest rates to influence borrowing, spending and economic activity, with the aim of bringing inflation under control.
Federal Reserve officials are expected to review the latest figures ahead of their October 27–28 policy meeting. While some investors believe the central bank could raise rates again, others expect officials to wait until December before making another move.
Financial markets reacted cautiously to the report, with stock prices falling slightly and bond yields rising as investors reassessed the possibility of higher interest rates. Increased borrowing costs could affect households and businesses through more expensive loans and financing.
However, raising interest rates may not fully address the current sources of inflation. While higher rates can reduce demand, they cannot directly resolve supply disruptions caused by geopolitical conflicts or shortages of essential materials.
The expansion of artificial intelligence infrastructure is adding another layer of pressure. Increased investment in data centres has raised demand for semiconductors, computer equipment and electrical components, contributing to higher prices for products such as smartphones, laptops and gaming devices.
Goldman Sachs estimated that the AI infrastructure boom had added approximately half a percentage point to the annual inflation rate measured by the Federal Reserve’s preferred inflation gauge.
Consumer technology prices have already reflected some of these pressures. Nintendo increased the price of its Switch 2 gaming system by 11% on September 1, bringing it to $499.99, while Apple’s latest iPhone 17 was priced about 10% higher than its previous upgrade, although some of the increase reflects improved features.
Other major companies are also responding to higher production and transportation costs. PepsiCo recently announced price increases for several snack products, including Doritos, Ruffles and Sun Chips, as well as some beverages, citing higher fuel, aluminium and food ingredient costs.
With inflation rising across multiple sectors, American consumers face renewed pressure on household budgets just weeks before voters head to the polls. The latest figures also leave the Federal Reserve facing a difficult decision over how to control prices without placing excessive pressure on economic growth.
