U.S. inflation climbs to 3.7% as gasoline prices drive the September jump

U.S. consumer prices accelerated in September as gasoline costs drove the biggest monthly jump in five months. The Consumer Price Index for all urban consumers rose 0.6% from August and 3.7% from a year earlier, the Bureau of Labor Statistics reported Wednesday. That annual rate was up from 3.4% in the 12 months through August and landed hotter than the 3.6% pace many economists had expected.

The report is the last full CPI reading before the November midterm elections and arrives as households already face elevated fuel bills and borrowing costs.

Gasoline carried more than half the monthly gain

The gasoline index surged 9.1% in September and accounted for over half of the overall monthly increase, according to the bureau. The broader energy index rose 5.2% after a 2.1% climb in August. Over the past year energy is up 20.4% with gasoline alone 34.2% higher and fuel oil up 74.2%.

Shelter prices rose 0.4% on the month and 3.2% over the year. Used cars and trucks climbed 0.7%. Apparel rose 0.3%. Airline fares jumped 1.2% in September and stand 22.4% higher than a year ago. Food prices were unchanged for the month as grocery costs edged down 0.1% while restaurant and takeout prices rose 0.2%. Food is up 2.5% over the past year.

Core prices also firmed

Stripping out food and energy, the so-called core index rose 0.3% in September matching August's gain and is up 2.6% over the year after a 2.4% reading the prior month. Recreation, education, medical care and apparel all contributed to the core advance. Communication was among the few major categories that fell.

The figures keep headline inflation well above the Federal Reserve's 2% goal. Officials raised the benchmark rate by a quarter point in September to a target range of 3.75% to 4%, their first hike in more than three years. Markets had leaned toward a pause at the Oct. 27-28 meeting but traders lifted the odds of another increase after Wednesday's print.

Markets and the road ahead

Major stock indexes sold off on the hotter reading. The S&P 500 fell about 1.1%, the Nasdaq Composite dropped about 1.8% and the Russell 2000 slid about 1.9%. Rate-sensitive technology and industrial shares led the retreat.

Oil has climbed from about $80 a barrel in August to more than $106 amid ongoing Middle East supply strains. That pressure at the pump has rippled into airfare diesel-sensitive freight and other everyday costs even as grocery prices eased slightly last month.

The next CPI release is scheduled for Nov. 10. Until then the September report will shape the Fed's late-October decision and the final weeks of campaign debate over the cost of living.