US Inflation Accelerates to 3.7% in September, Boosting Federal Reserve Rate Hike Bets
United States consumer prices rose faster than anticipated in September, pushing the annual inflation rate up to 3.7% from 3.4% in August. Monthly consumer price index figures grew by 0.6%, driven largely by a 9.1% surge in gasoline prices. Underlying core inflation, which excludes volatile food and energy costs, gained 0.3% for the month and 2.6% over the year, exceeding analysts forecasts.
The hotter inflation report fueled investor expectations that the Federal Reserve will implement additional interest rate increases. Odds of a rate hike at the upcoming October policy meeting jumped to over 40%, up from roughly 22% prior to the data release. Higher borrowing expectations pushed the 10-year Treasury yield up to 5.278% and strengthened the US dollar, which pressured major non-yielding and risk assets. Gold prices fell 1.3% to $4,100 per ounce, while Bitcoin dipped around 1.7% to trade near $81,700.
Escalating geopolitical conflicts in the Middle East have also increased pressure on global energy supplies, sending crude oil prices to multi-week highs. Investors will keep a close watch on future energy market disruptions and upcoming employment metrics, as central bank policymakers balance persistent price growth against potential softness in the labor market when making upcoming monetary policy decisions.
Key points
- US consumer price index rose 3.7% year-over-year in September, driven by a 9.1% jump in gasoline prices.
- Core inflation reached 2.6% annually, beating forecasts and lifting market expectations for Fed rate hikes.
- Rising Treasury yields and a stronger dollar pushed spot gold down 1.3% to $4,100 an ounce and Bitcoin down 1.7% to $81,700.
- Middle East supply disruptions pushed Brent crude up to $106.03 a barrel and West Texas Intermediate crude to $95.08.
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Why did US inflation increase in September?
US consumer prices rose due to a 9.1% jump in gasoline costs, which accounted for more than half of the monthly increase in consumer inflation. Overall energy prices advanced 5.2%, while shelter costs grew 0.4%.
How did financial markets react to the September CPI report?
Expectations of further central bank rate increases strengthened, causing 10-year Treasury yields and the US dollar to climb. Higher yields pressured risk and non-yielding assets, driving gold down 1.3% to $4,100 an ounce and Bitcoin down 1.7% to around $81,700.
What are the chances of another Federal Reserve interest rate hike?
Following the higher-than-expected inflation data, market probabilities for a Federal Reserve interest rate increase in October rose to approximately 42% to 43%, up from about 22% prior to the release.