US Inflation Heats Up Again as September CPI Rises to 3.7%: Will the Fed Raise Rates Again?

TradingKey - On October 14, US Eastern Time, the US Bureau of Labor Statistics released the latest inflation data. The US Consumer Price Index (CPI) rose 3.7% year-on-year in September, exceeding market expectations of 3.6% and accelerating significantly from 3.4% in August. On a month-on-month basis, it rose 0.6%, also higher than the 0.4% in August. A sharp rise in energy prices was the main driver behind this month's rebound in inflation.

Excluding food and energy prices, core CPI rose 0.3% month-on-month in September, higher than the market consensus expectation of 0.2% and matching the growth rate in August. Year-on-year, core CPI rose 2.6%, up from 2.4% in August and above the market expectation of around 2.5%. This indicates that, beyond the energy price shock, underlying US inflation pressures have also shown some rebound.

Looking at specific breakdown components, gasoline prices surged 9.1% month-on-month in September, contributing more than half of the month's overall CPI gain. Overall energy prices rose 5.2%, bringing the cumulative increase over the past 12 months to 20.4%. Meanwhile, housing costs rose 0.4% month-on-month, while used cars and trucks rose 0.7%. Overall food prices were flat month-on-month, with food at home declining 0.1% and food away from home rising 0.2%.

The Federal Reserve had already raised the target range for the federal funds rate to 3.75%-4.00% in September. This CPI report is one of the most critical inflation data releases ahead of the Fed's policy meeting on October 27-28. The market had previously widely expected that the Fed might pause rate hikes in October; however, the re-acceleration in September core CPI implies that the market will reassess the possibility of further monetary policy tightening later this year.

Next, the market will focus on the US September PPI and retail sales data to be released on October 15, as well as the PCE inflation data due at the end of October, to further gauge US inflation trends and the Fed's next policy path.