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US inflation jumps to 3.7%
Newsflash: US inflation jumped in September, and by more than expected, as the soaring cost of motor fuel pushed up the cost of living.
The US Consumer Prices Index roses by 3.7% in the year to September, up from 3.4% in August. Economists had forecast a smaller rise, to 3.6%.
Prices rose by 0.6% in Spetember alone.
Gasoline prices jumped by 9.1% in September, and were 34% higher tha a year ago, as motorists across America felt the impact of Donald Trump’s Middle East war at the pumps.
Those price pressures prompted Trump’s deal with Vladimir Putin last Friday – but as reported earlier, it’s not expected to unlock much extra supplies to the market.
Key events
Wall Street is falling
Stocks are falling at the start of trading on Wall Street, as today’s US inflation report disappoints investors.
The S&P 500 sharesindex has fallen by 0.4%, shedding 32 points to 7,773 points.
The tech-focused Nasdaq is down 0.5%.
US bond yields jump
US government borrowing costs are pushing higher, after today’s inflation report hardened expectations of interest rate rises from the Fed.
The yield on two-year Treasury bills has risen by 13 basis point (0.13 of a percentage point) to 4.92%, hitting their highest level since 29 September.
Ten-year US Treasury yields are up 9.5bps to 5.3% – towards the 24-year highs set earalier this month.
This adds to the fiscal mess facing the US (something the IMF warned about this morning); high bond yields push up the cost of servicing the $40tn US national debt, and makes issuing new debt more expensive too.
Congressman Brendan F. Boyle is blaming Donald Trump’s trade war, and his war with Iran, for driving up costs for Americans.
Boyle, a Democratic member of the House of Representatives, posted on X:
President Trump promised to lower costs on “day one,” but American families have already paid $3,500 more due to inflation since he took office. If he cared at all about working people, he would end his tariff taxes and his reckless Iran war.
Dollar hits 18-month high
The US dollar has hit an 18-month high, as traders anticipate that today’s inflation reading could prompt an increase in US interest rates.
The dollar index, which tracks the greenback against a basket of currencies, is up 0.5% to its highest level since April 2025.
October interest rate hike ‘back in play’
This jump in inflation increases the chances that the US Federal Reserve raises interest rates later this month.
According to CMEFedwatch, a quarter-point Fed rate hike in October is now a 43% chance, up from 22% yesterday.
Stephen Brown, Chief North America economist at Capital Economics, says:
The upside surprise to core CPI in September was broad-based rather than due to any obvious temporary factors, therefore bringing an October rate hike back into play and presenting upside risks to our forecast for just two more 25 bp hikes from the Fed.
Quilter: ‘Ugly US inflation data’ is blow to Trump
Today’s higher than expected inflation reading is “a blow to Donald Trump ahead of November’s midterms”, says Richard Carter, head of fixed interest research at Quilter Cheviot.
It could also encourage the US Federal Reserve to raise interest rates, which would not please Trump at all.
In a note headlined “Ugly US inflation data may shift Fed into more aggressive hiking mode”, Carter explains:
The President has been desperate to show he is getting inflation under control and providing the environment for rate cuts, even going so far as allowing Russian diesel back into the market, but those moves are proving too little too late as the war in the Middle East continues to have a grip on the global economy.
“CPI came in at 3.7%, slightly above expectations, and similarly core inflation was above predictions, suggesting that prices are feeding into the wider economy. Fuel and energy do remain the primary driver of inflation and certainly explains the actions of the US administration of late.
“This data is going to heap a whole lot of pressure on the Federal Reserve. Any chance of cuts to help with a stumbling labour market have essentially been vanquished with such elevated levels of inflation. The conflict in the Middle East will not be resolved any time soon, and as such, the current levels of inflation will likely remain well into 2027.
“Bond yields have been under scrutiny in recent weeks as those inflation concerns harden, and this will do little to appease the market. It is not inconceivable that ten-year treasury yields continue to march higher. Indeed, today’s data means another rate hike this year from the Fed cannot be ruled out as it may need to get more aggressive in its policy decisions in order to quell other inflationary trends.”
US core inflation up too
In a worrying sign, core inflation across the US has also risen.
The inflation measure which strips out food and energy costs rose to 2.6% in the year to September, up from 2.4% in August.
That could be a sign that inflationary pressures are broadening, which would concern central bankers.
George Brown, senior economist at Schroders, says:
“While energy prices might be grabbing the headlines, today’s report suggests the inflation problem runs much deeper. A stronger-than-expected core inflation reading adds to mounting evidence that domestic price pressures are becoming more entrenched, rather than easing.
“Markets are right to assume that policy will need to become much more restrictive to return inflation to target. The question is whether the Fed is prepared to tighten as much as the inflation outlook demands.”
The cost of energy across the US jumped by 5.2% during September, today’s inflation report shows, and was 20% higher than a year ago.
The shelter index (which tracks the cost of housing) rose 0.4% in September after rising 0.3% in August.
The index for food was unchanged in September, with the cost of food at home down 0.1% but the cost of food away from home up 0.2%.
On an annual basis, food prices were 2.5% higher than a year ago.
US inflation jumps to 3.7%
Newsflash: US inflation jumped in September, and by more than expected, as the soaring cost of motor fuel pushed up the cost of living.
The US Consumer Prices Index roses by 3.7% in the year to September, up from 3.4% in August. Economists had forecast a smaller rise, to 3.6%.
Prices rose by 0.6% in Spetember alone.
Gasoline prices jumped by 9.1% in September, and were 34% higher tha a year ago, as motorists across America felt the impact of Donald Trump’s Middle East war at the pumps.
Those price pressures prompted Trump’s deal with Vladimir Putin last Friday – but as reported earlier, it’s not expected to unlock much extra supplies to the market.
The US-Russia diesel deal might not lead to much more diesel on the market, but it’s a boon to Moscow’s economy.
Russia’s deputy prime minister Alexander Novak told reporters that the deal will boost Russia’s economy and allow it to increase production and refining volumes.
He added:
“Without a doubt, this is a positive signal for our economy.”
[Reminder: the IEA warned this morning that the lack of operational Russian refinery capacity means Trump’s deal won’t make a big difference to the diesel market].
Euro hits 16-month low against the pound
Back in the financial markets, the euro has dropped to a new 16-month low against the pound.
Sterling rose over €1.1850 this morning, the highest since June 2025.
The US-Russia diesel deal can pave the way for further economic cooperation between the two countries, Kremlin envoy Kirill Dmitriev said today.
Dmitriev added that Moscow would overcome any sanctions-related difficulties to ensure the diesel supplies.
The example of diesel cooperation with the US “will open other opportunities as well,” he told reporters, Reuters reports.
Back in Thailand, foreign secretary Ed Miliband has promised a ‘pragmatic approach’ to energy extraction in the North Sea.
Speaking to Sky News after speaking on the sidelines of the IMF’s annnual meeting, Miliband said:
“I’ve always had a pragmatic approach to the North Sea. We continue to use oil and gas for decades to come. The North Sea continues to play a role. We’ve also got to make progress when it comes to climate and show leadership working with others.”
I’m not sure ‘pragmatic’ is the very first word that the fossil fuel industry would use to describe Miliband, who as energy secretary ruled out new North Sea oil and gas exploration or lower taxes for fossil fuel companies.
But! Yesterday he reportedly approved a massive new oil field development in waters around the Falkland Islands, much to Argentina’s chagrin.
We’re still waiting for the government’s decision on whether to approve the controversial Rosebank and Jackdaw fields in the North Sea…
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