US Inflation Hits 3.7% as Energy Costs Surge

The U.S. Bureau of Labor Statistics reported that annual inflation rose to 3.7% in September, exceeding economist forecasts of 3.6% and increasing from 3.4% in August. The surge was primarily driven by a 9.1% jump in gasoline prices, which accounted for over half of the monthly increase. These price pressures are linked to the ongoing war with Iran, specifically the closure of the Strait of Hormuz and the expiration of a tentative peace accord in August.

Donald Trump attempted to mitigate fuel costs by reaching a deal with Vladimir Putin to allow Russian diesel back into the market, though the International Energy Agency warned that limited refinery capacity would minimize the impact. Core inflation also rose to 2.6%, suggesting price pressures are broadening into services, education, and medical care. This acceleration comes as voters prepare for November midterm elections, with polling showing a majority of adults blame the president for stubborn inflation.

In response to persistent inflation, the Federal Reserve System raised interest rates by a quarter percentage point in September. Fed Chair Kevin Warsh stated that inflation has remained too high for too long. The latest data has shifted market expectations, with the probability of another rate hike at the October 27-28 meeting soaring to 50%. Consequently, government borrowing costs have risen, with ten-year Treasury yields reaching 5.3%.