U.S. inflation accelerated last month as gas, clothes, and air fares got more expensive, evidence that rising prices remain an economic challenge just a few weeks before the midterm elections that have focused heavily on issues related to affordability.
The consumer price index rose 3.7% in September compared with a year ago, the Labor Department said Wednesday, up from 3.4% in August. On a monthly basis, costs jumped 0.6% from August to September, the biggest gain in five months, up from a 0.4% increase the previous month.
The figures underscore the lingering impact of the Iran war on gas prices and the stubborn persistence of inflation, which fell sharply from a 9.1% peak in 2022 but this year has ticked higher since the war began in late February. The rise isn’t all linked to gas prices, as surging investment in data centers and AI has also pushed up prices for computer chips and the consumer electronics that also use them. Elevated inflation has posed political problems for Republicans in Congress and is a challenge for the Federal Reserve, which is required by Congress to seek stable prices.
Excluding the volatile food and energy categories, core prices rose 2.6% in September from a year ago, up from 2.4% the previous month. And they climbed 0.3% from August to September, an elevated pace that, if it continued for a year, would run well above the Fed’s 2% target.
Ongoing inflation has taken a toll on Trump’s standing with U.S. voters. A poll by The Associated Press-NORC Center for Public Affairs Research found that just 17% of U.S. adults approve of his handling of the cost of living issue. And only 26% approve of his handling of the economy overall, a new low.
Federal Reserve officials are watching inflation data closely to determine whether they need to raise their short-term interest rate further, and by how much.
Fed Chairman Kevin Warsh said last month that inflation isn’t moving quickly enough back to the central bank’s target, causing the Fed to hike rates for the first time in three years, to about 3.9%.
Yet some key Fed officials have suggested the central bank can wait before increasing rates again. The Fed has a policy meeting Oct. 27-28, but most Wall Street investors expect it to hold rates then, and potentially implement another hike in December. Fed officials have penciled in just one more rate hike this year.
By raising borrowing costs, the Fed hopes to slow spending and growth and cool price increases. Yet much of the current inflation comes from supply shocks, such as the Iran war’s disruption to oil and gas supplies, and higher interest rates can’t address those bottlenecks.
Warsh has said his goal is to keep the gas price spike from seeping into more areas of the economy. It’s already pushed up the price of air fares about 22% from a year ago.
Gas prices jumped more than 9% from August to September, Wednesday’s report said. Rising gas costs are a highly visible sign of inflation and often drive down measures of consumer sentiment about the economy.
Prices at the pump have ticked lower in the past two weeks to a nationwide average of $4.33 a gallon, according to AAA, though they remain higher than a month ago.
Those costs raise shipping and other expenses for many large and small businesses, some of which are forced to pass the cost to consumers. Last week, PepsiCo said that it will raise prices for its snack foods, including Doritos, Ruffles, Sun Chips, and some sodas to offset higher costs for fuel, aluminum, and food ingredients.
The artificial intelligence buildout has also sharply elevated the cost of semiconductors, computer equipment, and electrical components, which have been passed on to consumers in the form of more expensive electronics such as gaming devices, laptops, and smartphones.
Goldman Sachs estimated in a report Tuesday that the AI buildout has added about a half-percentage point to the annual inflation rate, according to the Fed’s preferred inflation gauge.
On September 1, Nintendo increased the price for its Switch 2 gaming system by 11% to $499.99. And Apple’s newest iPhone, the iPhone 17, cost about 10% more than its previous upgrade, though some of that likely reflects greater capabilities.
—Christopher Rugaber, AP Economics Writer