WASHINGTON — U.S. inflation accelerated last month as gasoline and many other goods and services became more expensive, evidence that rising prices remain an economic challenge just a few weeks before midterm elections that have focused heavily on affordability.
The consumer price index rose 3.7% in September compared with a year ago, the Labor Department said Wednesday, up from 3.4% in August. On a monthly basis, costs jumped 0.6% from August to September, the biggest gain in five months, up from a 0.4% increase the previous month.
The figures underscore the lingering impact of the Iran war on gas prices and the stubborn persistence of inflation, which has ticked higher since the war began in late February. The rise isn't all linked to oil and gas, as surging investment in data centers and AI has also pushed up prices for computer chips and the consumer electronics that use them. Elevated inflation has posed political problems for Republicans in Congress and is a challenge for the Federal Reserve, which is required by Congress to seek stable prices.
Excluding the volatile food and energy categories, core prices rose 2.6% in September from a year ago, up from 2.4% the previous month and higher than economists had expected. And they climbed 0.3% from August to September, an elevated pace that, if it continued for a year, would run well above the Fed's 2% target.
Higher inflation will likely put more pressure on the Fed to lift its key interest rate at its next meeting Oct. 27-28. Economists noted that the report showed price increases were spread more broadly across the economy than in recent months.
“The report was worse than expected,” Bill Adams, chief U.S. economist at Fifth Third Bank, said in a note to clients. “Price increases were widespread. ... Consumer demand seems to be holding up better than the downbeat consumer surveys would suggest, helping businesses maintain pricing power."
Wednesday's figures are the last major inflation data to be released before the upcoming elections. Ongoing inflation has taken a toll on Trump's standing with U.S. voters. A poll by The Associated Press-NORC Center for Public Affairs Research found that just 17% of U.S. adults approve of his handling of the cost of living issue. And only 26% approve of his handling of the economy overall, a new low.
Higher prices are eroding Americans' earnings. The Labor Department also said Wednesday that average weekly paychecks, when adjusted for inflation, shrank last month compared with a year ago for the first time since May.
Gas prices jumped 9.1% just from August to September, the government's consumer price index report said. Rising gas costs are a highly visible sign of inflation and often drive down measures of consumer sentiment about the economy.
With fuel much more expensive, air fares rose 1.2% last month and have soared 22% compared with a year ago. Hotel prices rose 2% from August to September and are up 4.4% compared with a year earlier.
Consumers saw some relief in grocery prices, which actually declined 0.1% last month and are up just 1.8% from a year ago. Ground beef prices fell 0.8% in September, though they are still up 5.4% from last year.
The cost of toys, new and used cars, sporting goods, and shoes all rose at a rapid clip last month, the government said.
The government also said Wednesday that Social Security recipients will receive a 3.6% cost of living increase, based on the inflation figures.
The Middle East and Russia-Ukraine conflicts have also sharply inflated the cost of diesel fuel, which is used by long-haul trucks. Higher diesel prices will increase shipping expenses, which in turn could push up prices for a range of goods.
Ralph Newhouse, CEO of Chefman, which makes countertop appliances, said that rising diesel prices could force him to raise prices in the coming months.
The Mahwah, N.J.-based company, which makes milk frothers, air fryers, blenders and other appliances in China, last increased its prices in 2024. This year, it has used its $20 million in tariff refunds to offset the rise in fuel costs, but may not be able to do so much longer.
“We’re at the point right now that if we continue to see any additional rises in (diesel) prices, then these conversations are going to be forced upon us. We just day by day, hope and pray that we don’t have to have this conversation.”
Federal Reserve officials are watching inflation data closely to determine whether they need to raise their short-term interest rate further, and by how much.
Fed Chairman Kevin Warsh said last month that inflation isn't moving quickly enough back to the central bank's target, causing the Fed to hike rates for the first time in three years, to about 3.9%.
Yet some key Fed officials have suggested the central bank can wait before increasing rates again. The Fed has a policy meeting Oct. 27-28, but most Wall Street investors expect it to hold rates then, and potentially implement another hike in December. Fed officials have penciled in just one more rate hike this year.
Still, Wednesday's report has led many Wall Street investors to project that the Fed will now act in two weeks. The odds of a rate increase at the central bank's October meeting have doubled, though remain at just 50-50, according to futures pricing tracked by CME Fedwatch.
Stock prices fell slightly after the report, while greater expectations for rate hikes pushed up bond yields, which will raise borrowing costs throughout the economy.
By raising borrowing costs, the Fed hopes to slow spending and growth and cool price increases. Yet much of the current inflation comes from supply shocks, such as the Iran war's disruption to oil and gas supplies, and higher interest rates can't address those bottlenecks.
Warsh has said his goal is to keep the gas price spike from seeping into more areas of the economy. It's already pushed up the price of air fares about 22% from a year ago.
Those costs raise shipping and other expenses for many large and small businesses, some of which are forced to pass the cost to consumers. Last week, PepsiCo said that it will raise prices for its snack foods, including Doritos, Ruffles, Sun Chips, and some sodas to offset higher costs for fuel, aluminum, and food ingredients.
The artificial intelligence buildout has also sharply elevated the cost of semiconductors, computer equipment, and electrical components, which have been passed on to consumers in the form of more expensive electronics such as gaming devices, laptops, and smartphones.
Goldman Sachs estimated in a report Tuesday that the AI buildout has added about a half-percentage point to the annual inflation rate, according to the Fed's preferred inflation gauge.
On September 1, Nintendo increased the price for its Switch 2 gaming system by 11% to $499.99. And Apple's newest iPhone, the iPhone 17, cost about 10% more than its previous upgrade, though some of that likely reflects greater capabilities.
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AP Retail Writer Anne D'Innocenzio contributed to this report from New York City.