Inflation worsened last month to 3.7% in sign that prices remain
elevated as midterm elections near
[October 15, 2026] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — U.S. inflation accelerated last month as gasoline and
many other goods and services became more expensive, evidence that
rising prices remain an economic challenge just a few weeks before
midterm elections that have focused heavily on affordability.
The consumer price index rose 3.7% in September compared with a year
ago, the Labor Department said Wednesday, up from 3.4% in August. On a
monthly basis, costs jumped 0.6% from August to September, the biggest
gain in five months, up from a 0.4% increase the previous month.
The figures underscore the lingering impact of the Iran war on gas
prices and the stubborn persistence of inflation, which has ticked
higher since the war began in late February. The rise isn't all linked
to oil and gas, as surging investment in data centers and AI has also
pushed up prices for computer chips and the consumer electronics that
use them. Elevated inflation has posed political problems for
Republicans in Congress and is a challenge for the Federal Reserve,
which is required by Congress to seek stable prices.
Excluding the volatile food and energy categories, core prices rose 2.6%
in September from a year ago, up from 2.4% the previous month and higher
than economists had expected. And they climbed 0.3% from August to
September, an elevated pace that, if it continued for a year, would run
well above the Fed's 2% target.
Higher inflation will likely put more pressure on the Fed to lift its
key interest rate at its next meeting Oct. 27-28. Economists noted that
the report showed price increases were spread more broadly across the
economy than in recent months.
“The report was worse than expected,” Bill Adams, chief U.S. economist
at Fifth Third Bank, said in a note to clients. “Price increases were
widespread. ... Consumer demand seems to be holding up better than the
downbeat consumer surveys would suggest, helping businesses maintain
pricing power."
Wednesday's figures are the last major inflation data to be released
before the upcoming elections. Ongoing inflation has taken a toll on
Trump’s standing with U.S. voters. A poll by The Associated Press-NORC
Center for Public Affairs Research found that just 17% of U.S. adults
approve of his handling of the cost of living issue. And only 26%
approve of his handling of the economy overall, a new low.
Higher prices are eroding Americans' earnings. The Labor Department also
said Wednesday that average weekly paychecks, when adjusted for
inflation, shrank last month compared with a year ago for the first time
since May.
Gas prices jumped 9.1% just from August to September, the government's
consumer price index report said. Rising gas costs are a highly visible
sign of inflation and often drive down measures of consumer sentiment
about the economy.
With fuel much more expensive, air fares rose 1.2% last month and have
soared 22% compared with a year ago. Hotel prices rose 2% from August to
September and are up 4.4% compared with a year earlier.
Consumers saw some relief in grocery prices, which actually declined
0.1% last month and are up just 1.8% from a year ago. Ground beef prices
fell 0.8% in September, though they are still up 5.4% from last year.
The cost of toys, new and used cars, sporting goods, and shoes all rose
at a rapid clip last month, the government said.
The government also said Wednesday that Social Security recipients will
receive a 3.6% cost of living increase, based on the inflation figures.
The Middle East and Russia-Ukraine conflicts have also sharply inflated
the cost of diesel fuel, which is used by long-haul trucks. Higher
diesel prices will increase shipping expenses, which in turn could push
up prices for a range of goods.
Ralph Newhouse, CEO of Chefman, which makes countertop appliances, said
that rising diesel prices could force him to raise prices in the coming
months.
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A woman pushes a shopping cart as she leaves a grocery store in
Arlington Heights, Ill., Wednesday, Sept. 30, 2026. (AP Photo/Nam Y.
Huh)
 The Mahwah, N.J.-based company,
which makes milk frothers, air fryers, blenders and other appliances
in China, last increased its prices in 2024. This year, it has used
its $20 million in tariff refunds to offset the rise in fuel costs,
but may not be able to do so much longer.
“We’re at the point right now that if we continue to see any
additional rises in (diesel) prices, then these conversations are
going to be forced upon us. We just day by day, hope and pray that
we don’t have to have this conversation.”
Federal Reserve officials are watching inflation data closely to
determine whether they need to raise their short-term interest rate
further, and by how much.
Fed Chairman Kevin Warsh said last month that inflation isn't moving
quickly enough back to the central bank's target, causing the Fed to
hike rates for the first time in three years, to about 3.9%.
Yet some key Fed officials have suggested the central bank can wait
before increasing rates again. The Fed has a policy meeting Oct.
27-28, but most Wall Street investors expect it to hold rates then,
and potentially implement another hike in December. Fed officials
have penciled in just one more rate hike this year.
Still, Wednesday's report has led many Wall Street investors to
project that the Fed will now act in two weeks. The odds of a rate
increase at the central bank's October meeting have doubled, though
remain at just 50-50, according to futures pricing tracked by CME
Fedwatch.
Stock prices fell slightly after the report, while greater
expectations for rate hikes pushed up bond yields, which will raise
borrowing costs throughout the economy.
By raising borrowing costs, the Fed hopes to slow spending and
growth and cool price increases. Yet much of the current inflation
comes from supply shocks, such as the Iran war's disruption to oil
and gas supplies, and higher interest rates can't address those
bottlenecks.
Warsh has said his goal is to keep the gas price spike from seeping
into more areas of the economy. It's already pushed up the price of
air fares about 22% from a year ago.
Those costs raise shipping and other expenses for many large and
small businesses, some of which are forced to pass the cost to
consumers. Last week, PepsiCo said that it will raise prices for its
snack foods, including Doritos, Ruffles, Sun Chips, and some sodas
to offset higher costs for fuel, aluminum, and food ingredients.
The artificial intelligence buildout has also sharply elevated the
cost of semiconductors, computer equipment, and electrical
components, which have been passed on to consumers in the form of
more expensive electronics such as gaming devices, laptops, and
smartphones.
Goldman Sachs estimated in a report Tuesday that the AI buildout has
added about a half-percentage point to the annual inflation rate,
according to the Fed's preferred inflation gauge.
On September 1, Nintendo increased the price for its Switch 2 gaming
system by 11% to $499.99. And Apple's newest iPhone, the iPhone 17,
cost about 10% more than its previous upgrade, though some of that
likely reflects greater capabilities.
___
AP Retail Writer Anne D'Innocenzio contributed to this report from
New York City.
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