The Consumer Price Index (CPI) increased faster than expected in September, with prices rising 0.6 percent from August. The annual rate of inflation rose 3.7 percent, according to Bureau of Labor Statistics data released Wednesday. That’s compared to a 3.4 percent increase in August.
The main culprit: Energy prices. The index for gasoline rose 9.1 percent in September, accounting for more than half the monthly all-items increase, the BLS reported. The energy index increased 5.2 percent in September (following a 2.1-percent increase in August).
The shelter index rose 0.4 percent in September after rising 0.3 percent in August; the index for food was unchanged in September (the index for food away from home increased 0.2 percent and the index for food at home fell 0.1 percent), according to the BLS.
Core CPI — which excludes more volatile food and energy prices — rose 0.3 percent from August and 2.6 percent compared to a year earlier. Fed officials pay closest attention to that measure when it comes to deciding on rate increases.
“The uptick in core, which had been trending down from 2.9 percent in May, is more worrying,” Realtor.com Senior Economist Jake Krimmel said in a statement. “Some CPI reports seem backward-looking and stale, while others seem like they’re foreshadowing what’s to come. This one definitely feels like the latter.”
There are two more Federal Reserve meetings set to take place in 2026 — one at the end of October, the other in December.
Sam Williamson | Credit: First American
“Inflation accelerated in September, with both headline and core readings exceeding forecasts,” First American Senior Economist Sam Williamson said in a statement following the publication of the report. “The hotter reading keeps a rate hike firmly in play at the Federal Reserve’s October meeting, now just two weeks away.”
“Before the report, markets largely expected the central bank to wait until December for its next rate hike, following its first increase in three years last month,” Williamson said. “With both headline and core inflation exceeding forecasts, policymakers may instead move that hike forward to October. Another hike in December also remains possible, though the Fed’s next move will depend on incoming economic data.”
Krimmel, on the other hand, thinks a rate hike is more likely in December — and beyond. “Today’s firmer numbers are probably not enough to change the Fed’s holding bias in October, especially given the dovish talk from New York Fed President John Williams earlier this week. But a hold is hardly the slam dunk it was earlier. Today’s numbers all but guarantee a hike by December, though, while further opening the door for one or more hikes in early 2027. We are in ‘when’ not ‘if’ territory when it comes to the next Fed rate increase,” he said. “Bond markets noticed too, with the 10-year Treasury yield up 5 basis points immediately and 11 basis points in the first 15 minutes after the release. The evolution of bond yields and hike odds are two key things to monitor for mortgage rates this week and next.”
Jake Krimmel | Credit: Realtor.com
The Federal Reserve raised its benchmark interest rate to a range of 3.75 percent to 4 percent at its September 2026 meeting, based partly on inflation numbers. As of mid-October, 30-year mortgage rates remain above 7 percent.
Wednesday’s inflation data comes just a day after an existing-home sales report from the National Association of Realtors, which found U.S. sales stuck under 4 million as inventory hit pre-pandemic levels, with buyers gaining some leverage. “Despite the small monthly gain on a seasonally adjusted basis, August and September marked the two slowest months for home sales this year,” Lawrence Yun, NAR’s chief economist, said in a statement. “Further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home.”
“For prospective homebuyers, [the September CPI report] could keep mortgage rates elevated for longer as investors adjust to the prospect of more persistent inflation, pushing meaningful affordability relief further out,” Williams said in the statement. “Elevated rates also reinforce the lock-in effect, limiting housing inventory and slowing home sales. Rising incomes and cooling house prices are helping buyers gradually regain purchasing power, but high borrowing costs continue to erode some of those gains.”
Jeff Tucker | Credit: Windermere Real Estate
Jeff Tucker, principal economist at Windermere Real Estate, tried to assuage some fears. “Investors in longer-term debt should take some comfort in the fact that the FOMC has made a clear commitment to bringing inflation down, and I expect they’ll demonstrate that conviction with further hikes in the coming months,” he said. “That’s one reason any single inflation report, like this one, shouldn’t move long-term rates, like 10-year Treasury yields, too much — because the Fed will work to bring inflation back down in the longer term, which is the most important horizon for long-term debt. And in fact the 10-year is already walking back some of its initial jump” on Wednesday morning, he said.
