US Inflation Rises Ahead of Midterms, Fueling Fed Rate-Hike Fears

US consumer prices surged in September — the last inflation report before the midterm elections — raising the likelihood that the Federal Reserve will raise interest rates at its meeting later this month.

According to the Consumer Price Index (CPI) report released Wednesday by the Bureau of Labor Statistics (BLS), part of the US Department of Labor, year-on-year inflation rose to 3.7%, up from 3.4% in August. On a monthly basis, consumer prices rose 0.6%.

Gasoline prices led the increase as tensions between the US and Iran, as well as between Russia and Ukraine, put pressure on global energy prices. According to the BLS, gasoline prices rose 9.1% in September, accounting for more than half of the monthly CPI increase, and were up 34.2% compared with a year earlier.

“The open-ended war in Iran continues to disrupt global supply chains, driving food and fuel prices higher,” Kyle Moore, chief economist at The Century Foundation, an economic research organization, said in a statement sent to Al Jazeera.

Gasoline prices continued to climb. According to the American Automobile Association (AAA), which tracks daily pump prices, the average price of a gallon of gasoline stood at $4.33 ($1.14 per liter), compared with $4.31 a month earlier. Diesel was more expensive, at $6.29 a gallon ($1.66 per liter), compared with $6.23 a month earlier.

In a post on X, Patrick DeHaan, head of petroleum analysis at GasBuddy, said: “2026 has seen more days with an average gas price above $4 a gallon than any year before it: 158 days.”

Housing costs also rose 0.4% from the previous month, after a 0.3% increase in August. Food costs were a bright spot in the report, remaining broadly unchanged.

Prices for food away from home, including restaurant meals, rose 0.2%, but that increase was offset by a 0.1% decline in prices for food at home, which tracks grocery costs.

At grocery stores, poultry prices rose 0.7%, fruit and vegetable prices rose 0.5% and juice prices rose 1.1%. However, milk prices fell 2.1% and beef prices fell 0.9%.

Amid heavy investment in artificial intelligence (AI) infrastructure, software and computer accessory prices rose 28% compared with a year earlier.

“The AI boom is playing a very big role, and we have all read about the hundreds of billions of dollars being poured into data centers, AI companies and models,” Rami Cassis, who heads Parabellum Investment, said in a comment sent to Al Jazeera.

Pressure on the Fed

The inflation data was released just days before the Fed’s rate decision later this month. Last month, the US central bank raised interest rates by another 25 basis points, bringing its target to 3.75–4.00%, its first increase in three years.

Economists are divided over whether the Fed will keep raising rates or hold steady. According to CME FedWatch, a tool that tracks the likelihood of monetary policy decisions, there is a 52.9% chance rates will stay in the 3.75–4.00% range, while there is a 47.1% chance of another 0.25 percentage-point increase to 4.00–4.25%.

The inflation data heaps pressure on Republicans before the November 3 midterm elections. A recent Reuters/Ipsos survey found that about 78% of Americans blame the policies of US President Donald Trump for rising prices.

US stock markets tended to fall after the inflation report. The Nasdaq fell 0.8%, the S&P 500 fell 0.6%, while the Dow Jones Industrial Average was nearly flat in midday trading.