‘Ugly’ jump in US inflation, driven by gasoline prices, in blow to Trump before midterm elections – as it happened

Rolling coverage of the latest economic and financial news, including the IMF meeting in Thailand, the IEA’s new oil market report, and US inflation

Full story: US inflation rose to 3.7% in September

Global financial system is failing developing countries, says Ed Miliband

Key events3h agoClosing post3h agoABN AMRO predict Fed rate hike in December4h agoWall Street is falling4h agoUS bond yields jump4h agoDollar hits 18-month high4h agoOctober interest rate hike 'back in play'4h agoQuilter: 'Ugly US inflation data' is blow to Trump4h agoUS core inflation up too5h agoUS inflation jumps to 3.7%6h agoEuro hits 16-month low against the pound6h agoBank of America earnings hit by $1.2bn fine over money laundering failings9h agoDiesel shortages could persist well into 202710h agoUK bond yields drop with Healey 'to avoid more borrowing' in budget10h agoChina on track for record trade surplus this year10h agoEd Miliband: Global financial system is failing developing countries10h agoNot building third runway would be 'huge missed opportunity', Heathrow boss claims10h agoBoE's Pill wary of predictions of four rate rises11h agoBank of England governor and IMF warn of rising cyber crime risks11h agoIMF's Georgieva urges US to get its house in order11h agoIntroduction: IMF sounds alarm over rising government borrowing costs US motorists have been hit by soaring gasoline prices Photograph: Brian Leddy/APView image in fullscreenUS motorists have been hit by soaring gasoline prices Photograph: Brian Leddy/APFrom 5h agoNewsflash: 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%.

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 events3h agoClosing post3h agoABN AMRO predict Fed rate hike in December4h agoWall Street is falling4h agoUS bond yields jump4h agoDollar hits 18-month high4h agoOctober interest rate hike 'back in play'4h agoQuilter: 'Ugly US inflation data' is blow to Trump4h agoUS core inflation up too5h agoUS inflation jumps to 3.7%6h agoEuro hits 16-month low against the pound6h agoBank of America earnings hit by $1.2bn fine over money laundering failings9h agoDiesel shortages could persist well into 202710h agoUK bond yields drop with Healey 'to avoid more borrowing' in budget10h agoChina on track for record trade surplus this year10h agoEd Miliband: Global financial system is failing developing countries10h agoNot building third runway would be 'huge missed opportunity', Heathrow boss claims10h agoBoE's Pill wary of predictions of four rate rises11h agoBank of England governor and IMF warn of rising cyber crime risks11h agoIMF's Georgieva urges US to get its house in order11h agoIntroduction: IMF sounds alarm over rising government borrowing costsTime to wrap up….

Republicans are entering the midterm elections with the highest rate of inflation since the spring, according to a government report released today.

US price increases reached an annual rate of 3.7% in September, according to the latest data from the Bureau of Labor Statistics, up from 3.4% in August. This final inflation report before the pivotal midterm elections comes amid polls showing widespread dissatisfaction with the Trump administration over the cost of living.

Price increases are the highest they have been since the annual inflation rate reached a three-year peak of 4.2% in May. Gasoline accounted for over half of overall price increases, up 34% from last year. Fuel oil, which is used to heat homes, increased by 74% from last year, a worrying sign for households heading into the winter. Air travel, which many Americans rely on during the holidays, also increased by 22.4%.

Overall, consumer prices went up 0.6% from August. Core inflation, which strips out volatile energy and food prices, also ticked up by 0.3% in September to 2.6% annually.

Read moreHere’s the rest of today’s news:

Read moreEnglish and Welsh water firms could be forced to return £107m via lower bills Read moreJohn Healey ‘targets tax crackdown on online marketplaces’ in first budgetRead moreNvidia, worth $5.5tn, donates $250m to UK for AI safety researchRead moreBank of England and IMF bosses warn of cyber threat to trust in financial systemRead more‘From liabilities to goldmines’: refineries eye record profits from diesel shortageRead moreExcluding UK from ‘Made in Europe’ law will hurt entire EU car industry, Mercedes boss warnsRead moreA chart showing US inflationThe outlook for US inflation largely hinges on what happens with the Strait of Hormuz, says James Knightley, ING’s chief international economist.

The AI boom is another factor pushing up prices, he points out:

double quotation markRefined fuel prices continue to rise and run the risk of feeding through into a broader range of categories. At the same time, the tech/AI data centre roll out is adding to price pressures.

That said, Federal Reserve rate hikes will have limited impact on these two price drivers. In any case, the cooling housing market should translate into softer shelter inflation prints, while a less onerous tariff regime should also help. The key story though, is wage growth, which is the biggest cost input for corporate America. The low hire, low fire economy means there is little turnover in the jobs market, which is highly correlated with wage growth. Wages are currently running at just 3%, with the risk that we see a further slowdown coming through.

While bad news for households, this will help to dampen price pressures over the medium to longer term. Right now our forecast is for a December Federal Reserve rate hike before a long pause, but the risks to that view are skewed towards the Fed moving rates even higher before rate cuts come through.

US bank stocks have hit their lowest level in over four months, Reuters reports, with the S&P 500 banks index down 1.3%.

The Fed’s next meeting, on 27-28 October, is just a week before the midterm elections.

Rogier Quaedvlieg, economist at ABN AMRO, predicts the Fed will avoid raising interest rates then – but will hit borrowers with a hike in December.

double quotation markSeptember CPI inflation was hotter than expected for the second consecutive month.

Core inflation rose by 0.34% m/m, while headline inflation increased by 0.649%, lifting the y/y rate to 3.7%. This was above consensus but in line with our forecast. The core reading was the key surprise, prompting markets to raise the implied probability of an October rate hike from less than 25% to more than 50%.

Energy prices are beginning to have a significant impact, including on airline fares. Prices of new and used cars also increased as new model-year vehicles entered the market. The AI buildout again added to price pressures, with large increases in computer software and accessories, as well as computers and peripherals. Although inflationary pressure was broader than in last month’s exceptionally concentrated report, the share of CPI components showing elevated inflation continues to decline.

We therefore still expect inflation to ease over the course of the year. We also continue to expect the Fed to hold rates in October before raising the policy rate by a further 25 bps in December.

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.

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:

double quotation markPresident 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.

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.

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:

double quotation markThe 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.

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:

double quotation markThe 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.”

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:

double quotation mark“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.

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%.

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.

double quotation mark“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].

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:

double quotation mark“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…