Rising prices complicate Fed outlook ahead of midterms

Rising fuel costs are putting fresh pressure on American households as the Iran war pushes inflation higher and raises concerns about further interest rate hikes by the Federal Reserve.

According to data released by the Bureau of Labor Statistics on Wednesday, inflation accelerated to 3.7% in September from a year earlier, surpassing economists’ forecasts. Core inflation, which excludes volatile food and energy prices, also beat expectations, rising 2.6% year over year.

Higher energy prices drove the increase. Gasoline prices rose 9.1% in September alone and stood 34% higher than a year earlier. The conflict has disrupted oil supplies through the Strait of Hormuz, a critical route for global energy shipments.

Expensive diesel has also increased transportation costs 0.6%. While food prices held steady, experts caution that rising shipping costs could eventually drive up consumer prices.

Farming and manufacturing costs are also up, potentially pushing up prices across the economy.

Airline fares surged 22% over the past year, while tariffs and rising demand for AI chips have added to inflationary pressures. Prices for computers, other such equipment, and smart home assistants rose 9.7% year over year amid higher chip and semiconductor costs.

The latest figures could complicate the Fed’s efforts to bring inflation down to its 2% target.

Economists warn that persistent price pressures may prompt the central bank to raise interest rates in the coming months, increasing borrowing costs for households and businesses.

Meanwhile, grocery prices offered some relief, slipping 0.1% in September. However, rising living costs continue to weigh on consumer confidence as households struggle to manage everyday expenses.