US inflation rose by more than expected in the year to September, according to official figures released ahead of next month’s midterm elections. The pace of price rises increased to 3.7%, up from 3.4% in the 12 months to August.
The increase was above forecasts and was driven mainly by higher gasoline prices. Those prices have spiked after disruption to Middle East energy supplies linked to the US-Israel conflict with Iran. The elections are being fought over cost-of-living pressures across the country.
Gasoline and energy push up the headline rate
Car fuel prices jumped by 34.2% over 12 months. In September alone they rose by 9.1%, which the Bureau of Labor Statistics said accounted for more than half of the increase in inflation.
- Overall energy inflation: up 20.4% over the year
- Fuel oil, used in home heating: up 74.2% over the year
- Food prices: flat over September and up 2.5% across the year
- Core inflation, which excludes food and energy: 2.6%
Experts said the Federal Reserve, which sets the country’s interest rate, will be watching closely to see whether energy costs spread to other areas of the economy, such as food, and push inflation higher. For now, food inflation remains subdued.
How the consumer price index measures inflation
Inflation is the rate at which the prices of products or services rise over time. Officials at the Bureau of Labor Statistics measure it through the consumer price index, which tracks price changes for hundreds of goods and services, from groceries and clothing to energy and medical services.
The bureau uses this data to work out the overall level of inflation in the US economy. It has been measuring inflation for more than 110 years and updates its basket of goods as spending and lifestyle habits change. Cars and radios were not included in early data, while ice was later replaced by refrigeration in the energy section alongside fuel and electricity.
Supply and demand also shape prices. Crude oil, which is used to make gasoline and diesel, illustrates the supply effect. Before the US-Israel war with Iran began, it was trading at just over $70 a barrel, but after the conflict constricted supplies the price rose quickly and is currently over $100.
Tariffs add to price pressures
Since returning to office for a second time, President Donald Trump has introduced tariffs on most US trading partners. Some initial tariffs were scaled back as the US made trade agreements, and in February the Supreme Court outlawed most of the remaining additional global levies. The president then immediately announced a new 10% global tariff to replace them.
Trump argued the tariffs would increase US tax revenue, boost manufacturing and encourage people to buy American-made goods. However, research from the Federal Reserve Bank of New York found that the higher import taxes have also affected inflation. Tariffs are levies that businesses pay on imported goods, and they directly raise prices for US companies unless overseas firms lower their prices to absorb part of the cost.
The New York Fed found that exporters cut their prices very little, meaning US-based businesses absorbed nearly 90% of the added tax. Higher tariffs also indirectly affected locally made goods, because many US producers rely on overseas parts, materials or ingredients. Overall, the Fed found that each percentage point rise in average tariffs led to a price increase of nearly 0.25% for consumer goods after one year.
Inflation is currently above the Federal Reserve’s target of 2%, but it has been much higher in recent years. During the Covid pandemic, supply chain disruption pushed it up, and oil prices surged above $100 a barrel after Russia launched its full-scale invasion of Ukraine in early 2022. Those factors helped drive inflation to a peak of about 9%. A slower rate of inflation does not mean prices are falling, only that they are rising more slowly.
