US September CPI Preview: High Oil Prices Expected to Push Up Overall Inflation, Moderate Core Inflation May Ease Urgency for Rate Hikes

According to Zhitong Finance APP, driven by rising gasoline and food prices, U.S. consumer prices in September may have risen significantly, adding more bad news for President Trump and the Republican Party ahead of the key midterm elections on November 3. The U.S. Department of Labor will release the Consumer Price Index (CPI) report at 20:30 Beijing time on Wednesday. Economists predict that the CPI for September may rise by 0.6% month-on-month, compared to a 0.4% increase in August. The year-on-year CPI for September is expected to rise 3.6%, higher than August's 3.4%. The Federal Reserve tracks the Personal Consumption Expenditures (PCE) price index and takes it as a reference indicator for its 2% inflation target.

Previous surveys have shown that as dissatisfaction with the rising cost of living grows, consumer confidence has deteriorated and Trump’s approval ratings have fallen. Polls show about 78% of Americans blame rising prices on Trump's policies, including import tariffs and the U.S.-Israel conflict with Iran; the rise in prices is outpacing wages.

However, the September CPI report is expected to show that excluding the more volatile food and energy prices, other goods will show a moderate increase in prices, which will further reduce the urgency for the Federal Reserve to raise interest rates again this month.

Rising Food and Energy Prices

Economists say that the slowdown in core CPI monthly inflation brings little comfort to most consumers, especially those at the so-called "bottom" of the K-shaped economy.

“People care about food and energy. These are what they feel every day,” said Sung Won Sohn, Professor of Finance and Economics at Loyola Marymount University. “Many voters are at the bottom of the K-shaped economy. They are suffering from rising energy and food prices, and I think this will affect the election results—as do a lot of other people.”

Some economists estimate that gasoline may contribute about 0.3 percentage points to September's CPI. According to the U.S. Energy Information Administration, gasoline prices surged 7.1% in September. Food prices are expected to rise at least 0.2% after two consecutive months of 0.1% increases.

The September CPI report will be closely watched by millions of retirees and other Social Security beneficiaries, who are trying to estimate how much their benefits will increase next year. The U.S. Social Security Administration uses CPI data for urban wage earners and clerical workers from the third quarter of 2025 to the third quarter of 2026 to determine the annual Cost of Living Adjustment (COLA) for Social Security and Supplemental Security Income benefits in 2027. These programs benefit retired American seniors, as well as the disabled, certain widows, widowers, and children. The Senior Citizens League, one of the largest organizations for older Americans, expects the COLA to increase by 3.5% in 2027, up from 2.8% in 2026, which would increase the average monthly benefits for retirees by $67.90 to $2,007.

The impact of the shock in energy prices is closely monitored for signs it may spill over beyond the transportation sector. Some economists argue that higher energy prices have yet to be embedded in inflation, given the moderate rise in core CPI. Others warn that diesel prices at record highs, plus no end in sight to the Middle East conflict, will soon be reflected in supermarket prices. They point out that price indices in business surveys remain high.

Core Inflation Expected to Moderate

Excluding the volatile food and energy prices, the September CPI is expected to increase by 0.2% month-on-month, compared with a 0.3% increase in August. Core CPI inflation is expected to slow down in September, reflecting the waning impact of the jump in mobile phone prices caused by changes in AT&T service, although a higher-than-expected increase cannot be ruled out. Other service providers also raised fees in September.

Airfare prices may rise further due to higher jet fuel costs. Rents are expected to rise moderately. As the impact of tariffs fades, goods prices may edge up slightly. For the 12 months ending in September, core CPI inflation is expected to rise 2.5%, compared with 2.4% in August. This indicator lags core PCE inflation, which rose 3.0% in August, as the composition weights differ in the index basket.

Federal Reserve Rate Hike Expectations Cool in October

Last month, the Federal Reserve raised its benchmark overnight interest rate by 25 basis points to a range of 3.75%-4.00%, the first increase in three years, and signaled it would further raise borrowing costs in the coming months. CME’s FedWatch tool shows financial markets see about a 22% chance of an interest rate hike at the October 27-28 policy meeting.

Disappointing nonfarm payroll growth in September and lower-than-expected PCE inflation in July and August have reduced the likelihood of a rate hike this month. Economists expect the Federal Reserve to raise rates in December.

“If the September core CPI monthly increase can stay in the 0.2% range, the Federal Reserve should be able to keep rates unchanged in October. However, this does not end the debate about whether further hikes will be needed in the future,” said Scott Anderson, Chief U.S. Economist at BMO Capital Markets.