September CPI rose 0.6% for the month, with the annual inflation rate reaching 3.7%. From October 20-22, along the banks of Shanghai's Huangpu River, the 2026 Sustainable Global Leaders Conference returns once again. Nobel and Turing Award winners will take the stage to discuss the future and trends of technology, and the popular professor who "rescues" people from anxiety and the era of involution — Macfarlane — will hold a live dialogue with Xiang Biao. Limited seats available, first come first served. Let us journey together toward sustainability. [Click to register]
Key Takeaways
U.S. Bureau of Labor Statistics data: September Consumer Price Index (CPI) rose 3.7% year-over-year, up from 3.4% in August. The inflation uptick was primarily driven by the Iran war, as the conflict pushed up crude oil and refined product prices, including gasoline, diesel, and jet fuel. Economists say tariffs, AI data center construction, and strong consumer demand in travel and other sectors have also added upward pressure on prices. On September 28, 2026, at a G&M gas station in Torrance, California, a driver fills up with diesel as the sign displays prices for unleaded gasoline and diesel.
Economists say that with the Iran war driving up gasoline and energy prices, U.S. inflation rose again in September, further squeezing household budgets and potentially forcing the Federal Reserve to raise interest rates. The U.S. Bureau of Labor Statistics released data on Wednesday showing September CPI rose 3.7% year-over-year, compared with 3.4% in August. Economists are paying closer attention to core CPI, which strips out volatile food and energy prices to gauge underlying inflation pressures in the U.S. economy. September core CPI rose to 2.6% year-over-year, up from 2.4% in August. Moody's Chief Economist Mark Zandi said: "This report shows inflation remains stubbornly high, which is concerning." "The impact of the war is visible throughout this report — the war is the main driver behind this round of inflation resurgence."
Public Deeply Dissatisfied with Cost of Living
This inflation data comes less than a month before the midterm elections, where affordability is a central issue. Beyond rising prices for goods and services, higher U.S. Treasury yields are further pushing up interest rates on mortgages, auto loans, and other consumer credit. Economists say the Federal Reserve relies on interest rate policy to control inflation, and at upcoming policy meetings, it may raise the benchmark rate to suppress persistently elevated inflation. The benchmark rate feeds through to borrowing costs across the economy. The Fed's long-term inflation target is 2%, and U.S. inflation has now exceeded that target for five consecutive years. Zandi said Wednesday's CPI report further supports the view that "the Fed will continue to raise rates." Wells Fargo Investment Institute released a report on Tuesday projecting that inflation pressures may push the Fed to continue raising rates from now until spring 2027. Against the backdrop of rising prices, consumer confidence indicators continue to weaken. The University of Michigan's September consumer sentiment index fell to a low level. Joanne Hsu, director of the University of Michigan consumer survey, wrote in her data analysis: "Public dissatisfaction with the cost of living continues to intensify, with consumers across the political spectrum believing the economy has worsened this year." The Social Security Administration announced on Wednesday the 2027 Social Security cost-of-living adjustment (COLA), calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). A recent survey showed that 76% of respondents believe a 3.5% Social Security increase would provide meaningful help.
How the Iran War and Oil Prices Affect Inflation
The Iran war began in late February, with U.S. and Israeli strikes on Iran directly pushing up international oil prices. Economists say higher crude oil prices drive up refined products like gasoline, diesel, and jet fuel, raising costs across all sectors of the U.S. economy. Michael Reid, RBC's U.S. Economics Chief, said: "This round of inflation is fundamentally oil-price driven, and this situation will persist for months." The conflict has severely disrupted oil shipping through the Strait of Hormuz, the key oil passage in the Middle East that handles a large share of global crude exports. The war has damaged regional refining facilities and restricted supplies of fertilizer and other materials, further driving up global food prices. Economists say the Russia-Ukraine conflict has also pushed up diesel prices, mainly because Ukraine has struck Russian refineries. The Wells Fargo Investment Institute report noted: "Crude oil is still being shipped through the Strait of Hormuz, but volumes are below pre-war levels. Even if key shipping lanes fully recover, damaged refining capacity and logistics issues may mean energy prices won't ease until mid-2027." U.S. Bureau of Labor Statistics data on Wednesday showed: gasoline prices jumped 9.1% in September alone, accounting for more than half of the monthly CPI increase; gasoline has risen 34% over the past year. AAA data shows the national average gasoline price on Wednesday was $4.33 per gallon, up 45% from $2.98 per gallon on February 27 before the Iran war began. Gasoline price increases hit drivers hard, while diesel price increases have broader ripple effects. Diesel is used in freight trucks, trains, and ships to transport goods; it is also widely used in agriculture, manufacturing, residential and industrial heating. AAA data shows the national average diesel price on Wednesday was $6.30 per gallon, up about 68% from $3.76 per gallon before the war. Reid said: "Consumers ultimately bear the cost." But there is a lag in how fuel price increases pass through to end prices, and the process can take months. As the year-end holiday shopping season approaches, retailers typically offer deep discounts to attract consumers. Reid said the key question ahead is whether merchant discounts will shrink significantly or even disappear. CPI data shows airline ticket prices rose 22% over the past year, mainly driven by higher jet fuel costs; strong travel demand has also pushed up prices in the travel category. Hotel and motel prices rose more than 4% year-over-year. Zandi said: "A large portion comes from high-end travel spending. Rising U.S. stocks have boosted wealth levels, and many high-income Americans are traveling more, supporting related spending."
Other Inflation Drivers
Economists say the Iran war and energy are not the only sources of inflation. Reid said: "Adding tariffs on top of energy price increases has pushed prices up slightly further." An RBC research note on Wednesday pointed out that tariffs combined with transportation costs are beginning to show up in entertainment consumer goods prices. "September CPI data shows that entertainment goods heavily reliant on imports, such as toys, recorded the largest single-month increase on record." Economists say large-scale AI data center construction is also fueling inflation. AI computing demand is increasing the scarcity of AI server chips; these chips are also used in laptops, game consoles, automobiles, and various other consumer electronics. For example: Apple raised prices for MacBooks and iPads in June, citing soaring memory and storage chip costs; Microsoft also raised Xbox console prices due to component cost increases. Zandi pointed to one bright spot in the inflation report: despite higher diesel prices, grocery prices edged down 0.1% month-over-month in September. CPI data shows beef prices fell 1% for the month, which Zandi attributes partly to the beef import tariff policy announced by Trump in August.
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