September CPI Expected to Hit 3.7%, Last Inflation Read Before Midterms

Consumer prices likely rose 3.7% in September from a year earlier, the hottest reading in months and the final inflation report voters will see before the midterm elections. The Labor Department publishes the data Wednesday morning.

Economists surveyed by FactSet forecast a 3.6% annual increase, up from 3.4% in August. On a monthly basis, prices are expected to have jumped 0.6% from August to September, according to FactSet — the biggest month-over-month move since April and up from 0.4% the previous month.

By Nathan Brooks

The numbers land at a moment when inflation has already reshaped the political map. A poll by The Associated Press-NORC Center for Public Affairs Research found that just 17% of U.S. adults approve of President Trump's handling of the cost of living. Only 26% approve of his handling of the economy overall, a new low.

What's driving the spike?

Two forces dominate. The first is gas. Prices at the pump jumped about 9% from August to September, a big enough move to account for much of the overall inflation increase. The Iran war, which began in late February, disrupted oil and gas supplies, and the effects are still working through the economy.

Air fares illustrate the spillover: they're up about 23% from a year ago. Gas prices averaged $4.34 a gallon nationwide Tuesday, up a few cents from a month earlier, though they've ticked lower in recent weeks.

The second force is the artificial intelligence buildout. It has sharply elevated the cost of semiconductors, computer equipment, and electrical components, and those costs have been passed into consumer electronics — gaming devices, laptops, and smartphones.

The evidence is already on price tags. On September 1, Nintendo raised the price of its Switch 2 gaming system by 11%, to $499.99. Apple's newest iPhone, the iPhone 17, costs about 10% more than its previous upgrade, though some of that likely reflects greater capabilities.

Businesses in the middle are passing costs through. Last week, PepsiCo said it will raise prices on snack foods including Doritos, Ruffles, Sun Chips, and some sodas, to offset higher costs for fuel, aluminum, and food ingredients.

What does this change for the Fed?

Core inflation, which strips out volatile food and energy categories, is expected to show a 2.5% annual increase, up slightly from 2.4% in August. That's closer to the Fed's 2% target — but it has been stuck at roughly that level since January, just before the Iran war began. Core prices are forecast to have risen just 0.2% from August to September.

Fed Chairman Kevin Warsh has already acted. He said last month that inflation isn't moving quickly enough back to the central bank's target, prompting the Fed to hike rates for the first time in three years, to about 3.9%.

"The plain fact is that inflation is too high and has been for too long," Warsh said at a news conference last month. Inflation reports over the summer "do not tell me that underlying trends have meaningfully improved," he added.

Yet the Fed may not move again immediately. The next policy meeting runs Oct. 27-28, and most Wall Street investors expect the central bank to hold rates then, with a potential additional hike in December. Fed officials have penciled in just one more rate hike this year.

The structural problem rates can't fix

Here's the tension practitioners should watch. The Fed raises borrowing costs to slow spending and growth, and cool price increases. But much of the current inflation stems from supply shocks — the Iran war's disruption to oil and gas supplies, and component shortages tied to the AI buildout. Higher interest rates can't unclog those bottlenecks.

Warsh's stated goal is narrower: keep the gas price spike from seeping into more areas of the economy. The September report will show how much of that seepage has already happened — air fares and electronics suggest some of it has.

Headline inflation is still far below its 9.1% peak in 2022, but it has ticked higher since the war began. For Republicans in Congress, that direction matters more than the level, and Wednesday's print is the last hard data point before voters render their verdict. For markets, the question is whether a 0.6% monthly jump forces the Fed's December hand.