Inflation Likely Ticked Up in September Ahead of Midterms

Inflation likely worsened in September, according to economists' forecasts, in one of the last government reports on prices before the midterm elections, which have been heavily influenced by concerns over affordability.

Consumer prices are forecast to have risen 3.6% in September compared to a year earlier, an increase from 3.4% in August, according to a survey of economists by data provider FactSet. The Labor Department is scheduled to release the report this week.

On a monthly basis, prices are expected to have risen 0.6% from August to September, FactSet said, a jump from 0.4% the previous month and the largest increase since April. These figures are likely to underscore the lingering impact of supply shocks on gas prices and the persistence of inflation.

Inflation has fallen sharply from its 9.1% peak in 2022 but has edged higher since late February. The ongoing rise in prices has posed political challenges for Republicans in Congress and remains a key concern for the Federal Reserve, which is tasked with seeking stable prices.

Excluding the volatile food and energy categories, core prices likely rose 2.5% in September from a year ago, a slight increase from 2.4% in August. This measure is closer to the Fed's 2% inflation target but has remained largely stagnant since January.

Federal Reserve officials are closely monitoring inflation data to determine future interest rate adjustments. Fed Chair Kevin Warsh has previously indicated that inflation is not returning to the central bank's target quickly enough, leading to previous rate hikes. He stated that inflation has been "too high and has been for too long," and that "underlying trends have meaningfully improved" is not evident in recent reports.

Despite concerns, some Fed officials have suggested the central bank could pause rate increases. While the Fed has a policy meeting scheduled, many Wall Street investors anticipate that rates will be held steady, with a potential further increase in December. Fed officials have projected only one more rate hike for the year.

By increasing borrowing costs, the Fed aims to slow spending and cool price increases. However, much of the current inflation stems from supply shocks, such as disruptions to oil and gas supplies, which higher interest rates cannot directly address.

Warsh's goal is to prevent the spike in gas prices from affecting broader economic sectors. Gas prices have already contributed to a roughly 23% increase in airfares over the past year. Gas prices themselves rose approximately 9% from August to September, a significant factor expected to drive the overall inflation increase. The rising cost of gasoline is a highly visible indicator of inflation and often negatively impacts consumer sentiment about the economy.

While prices at the pump have recently declined slightly, they remain higher than a month ago. Nationwide, gas prices averaged $4.34 a gallon on Tuesday, a marginal increase from the previous month.

These elevated costs increase shipping and other expenses for businesses, some of which pass these costs on to consumers. PepsiCo recently announced price increases for its snack foods and some sodas to offset higher costs for fuel, aluminum, and ingredients.

The demand for semiconductors, driven in part by artificial intelligence development, has also sharply increased the cost of computer equipment and electrical components. These higher costs have been reflected in consumer electronics such as gaming devices, laptops, and smartphones. Nintendo, for example, increased the price of its Switch 2 gaming system by 11% to $499.99. Apple's latest iPhone also saw a price increase of approximately 10% compared to its predecessor, though this may also reflect enhanced features.