US inflation hits 3.7% ahead of midterm elections
US inflation accelerated to an annual rate of 3.7% in September, driven by surging energy prices. The data increases pressure on the Federal Reserve and poses political challenges for President Trump.
US inflation reached an annual rate of 3.7% in September, up from 3.4% in August. The consumer price index rose 0.6% over the month, the largest monthly gain in five months, according to the Bureau of Labor Statistics. Core inflation, which excludes volatile food and energy prices, ticked up to 2.6% annually from 2.4% in August. The September figure exceeded economists' forecast of 3.6%.
Energy prices drive the surge
Energy costs were the primary driver of the inflation spike. Gasoline prices alone accounted for over half of the overall monthly price increase. Energy prices overall rose 5.2% from August to September and are up 20.4% over the past year.
| Item | Monthly Increase | Annual Increase |
|---|---|---|
| Gasoline | 9.1% | 34.2% |
| Fuel Oil | - | 74.2% |
| Air Travel | - | 22.4% |
Higher energy prices linked to the ongoing conflict with Iran, which began in late February 2026, have cost US consumers a total of $133 billion. Brown University estimates this translates to more than $1,020 per household. Diesel prices reached a record high last month.
Political fallout for Trump
The inflation surge arrives just before key midterm elections. A recent poll found only 17% of US adults approve of President Donald Trump's handling of the cost of living. Just 26% approve of his handling of the economy a new low. According to a separate survey, 78% of Americans blame the current administration’s policies for inflation that outpaces their earnings. This view is shared by 57% of Republicans who support Trump.
Raised inflation has posed political problems for Republicans in Congress. Trump defended his economic record at a rally in Wasilla, Alaska, stating his support for families has been 'substantial.' He also suggested attacks by Yemen’s Houthi group on Saudi Arabia were a deliberate effort to affect the upcoming elections. The White House did not immediately comment on the latest inflation report.
Federal Reserve and market reactions
The higher-than-expected inflation intensifies pressure on the Federal Reserve. Last month, the Fed raised interest rates for the first time since 2023, citing raised prices. Richard Carter, head of fixed interest research at Quilter Cheviot, said, "Inflation in the US has come in higher than expected, in a blow to Donald Trump ahead of November’s midterms."
Financial markets reacted sharply. Major US stock indices turned negative. Bond yields jumped, with the policy-sensitive two-year Treasury yield rising 13 basis points to 4.93%. The benchmark 10-year yield climbed about eight basis points to around 5.3%. Precious metals sold off, with gold falling more than 1.7% and silver down over 4%. Oil prices were mixed.
Broader economic costs and context
September’s annual inflation rate is the highest recorded before a midterm election, excluding the pandemic period, since 1990. The ongoing price pressures have direct consequences for consumers. The average gas price remains over a dollar per gallon more than a year ago. The cost of borrowing money is also rising, with the 30-year mortgage rate reaching 7.40%.
The Federal Reserve faces heightened pressure to increase interest rates as raised inflation complicates its efforts to control price rises. Inflation moving further away from the central bank's 2% target was described as the 'last thing' global bond markets needed.
