Inflation Accelerates to 3.7% in September, Delivering Late Blow to Republicans Before Midterms

U.S. inflation rose more than expected last month, with gasoline prices surging and price pressures broadening across the economy in the final major economic report before the November 3 midterm elections.

The consumer price index climbed 3.7 percent from a year earlier in September, up from 3.4 percent in August and above economists’ forecasts of 3.6 percent, the Labor Department said Wednesday. On a monthly basis, prices jumped 0.6 percent, the largest gain in five months.

A 9.1 percent surge in gasoline prices accounted for more than half of the monthly increase, driven by the ongoing U.S.-Israeli war with Iran. Core inflation, which excludes volatile food and energy costs, rose 2.6 percent annually, also exceeding expectations.

“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.”

The inflation figures are the last major economic data before voters head to the polls, and they pose a significant political challenge for President Donald Trump and Republican candidates.

An AP-NORC poll found that just 17 percent of U.S. adults approve of Trump’s handling of the cost of living, while only 26 percent approve of his economic stewardship overall, a new low.

Higher prices are also eroding Americans’ earnings. The Labor Department said average weekly paychecks, adjusted for inflation, shrank last month compared with a year ago for the first time since May.

The report increases pressure on the Federal Reserve to raise interest rates again at its October 27-28 meeting. Financial markets raised the odds of a rate hike this month to roughly 52 percent from about 22 percent before the data was released. The Fed raised rates in September for the first time in three years, citing inflation that has been “too high” for “too long.”

“The last mile back to target could remain bumpy and keep interest rates elevated,” said Jeffrey Roach, chief economist at LPL Financial. “The report complicates the Fed’s decision this month, as the road back to price stability is looking increasingly difficult to navigate.”

The Social Security Administration also announced Wednesday that recipients will receive a 3.6 percent cost-of-living increase next year, based on the inflation figures.

Some relief came in grocery prices, which declined 0.1 percent last month and are up just 1.8 percent from a year ago. But costs for toys, new and used cars, sporting goods, and shoes all rose at a rapid clip. Air fares climbed 1.2 percent in September and have soared 22 percent compared with a year earlier.

The Middle East conflict has also sharply inflated diesel costs, which could push up shipping expenses and eventually prices for a broad range of goods.

Ralph Newhouse, CEO of appliance maker Chefman, said rising diesel prices could force him to raise prices in the coming months after using $20 million in tariff refunds to offset fuel costs this year.

Trump has sought to ease fuel prices by striking a deal with Russian President Vladimir Putin to allow Russian diesel supplies to reach the U.S., a move criticized by Kyiv. He has also urged Ukraine to stop attacking Russian oil refineries.

With less than three weeks until the election, forecasters give Democrats a 77 percent chance of winning the House and a 56 percent probability of capturing the Senate, according to Decision Desk HQ.