The U.S. September CPI data was released, showing a 3.7% year-on-year increase—higher than the market expectation of 3.6%. What signals does this release convey?

First, we can catch a glimpse from EPFR data: as of the end of September, U.S. equity funds recorded net inflows for 13 consecutive months—the longest such streak since EPFR began tracking in 2000. Meanwhile, the S&P 500 Index has repeatedly hit new highs this year, rising approximately 14% since 2026. Related U.S.-listed ETFs tracking A-shares traded at average premiums exceeding 30%. Second, it is now clearly unrealistic for Betzner to halve the fiscal deficit by mid-term in his tenure. However, should Democrats gain control of either chamber of Congress in the November midterm elections, the Trump administration will undoubtedly push Congress—before year-end—to pass a federal budget deficit reduction plan! Let’s first examine the data: on October 14, 2026, local time, the U.S. released its September Consumer Price Index (CPI), which rose 3.7% year-on-year—above both the market expectation of 3.6% and August’s 3.4%; month-on-month, it rose 0.6%, up from August’s 0.4%. Core CPI—excluding food and energy—rose 2.6% year-on-year, up from 2.4% in August, and 0.3% month-on-month. This means the problem is no longer merely short-term inflation driven by oil prices; underlying price pressures are also beginning to rise—a phenomenon commonly referred to as ‘second-round transmission.’ Consequently, Bank of America has forecast three rate hikes before July 2026, with at least one expected this year—though whether it occurs in October or December remains contested. Following the CPI release, the probability of the Fed holding rates steady in October dropped from 78.4% to 46.3%, while the probability of a 25-basis-point hike rose from 21.6% to 53.7%! Market reactions across other asset classes included: a stronger U.S. dollar, rising U.S. Treasury yields, falling gold prices, declining U.S. equity index futures, and a rebound in crude oil prices! Let’s break down the structural drivers behind the 3.7% seasonally adjusted inflation figure. In September, U.S. gasoline prices rose 7.1% month-on-month—constituting a major contributor to the overall CPI increase. The Iran war and heightened risks around the Strait of Hormuz have intensified uncertainty in energy supply, causing crude oil prices to transmit upward through gasoline, transportation, and corporate production costs to final consumer prices. But unlike in August, core CPI rose year-on-year from 2.4% to 2.6%, indicating that pricing pressures are no longer confined solely to the energy sector. At least housing, transportation, and certain goods and services prices have already been noticeably affected by labor costs, tariffs, and supply-chain disruptions. Of course, a single month’s data is insufficient to confirm that inflation has spiraled out of control—but it certainly erodes market confidence in an automatic, natural decline in inflation. Now there is concern that this trend, combined with rising Treasury yields, could further entrench ‘inflation trades’ in financial markets—potentially triggering a global economic recession. Moreover, if commodity price increases prove persistent, it may prompt Trump—before the midterm elections—to pursue what we might call ‘conflict trades’ targeting Iran and Yemen. Traditional demand-driven inflation can be curbed via rate hikes that suppress consumption, investment, and credit expansion. Yet if inflation stems from constrained oil supply or AI-driven speculation, rate hikes cannot directly boost crude output nor ‘cool down’ AI—instead, they raise corporate financing costs and depress household purchasing power. This implies the Fed may need to pay a significantly higher economic cost to bring inflation back toward its target.

Why is China’s inflation rate far lower than America’s? Behind these two inflation figures lie two distinct economic models.

Please remember to like and share! If you haven’t yet subscribed, please follow the ‘Sanlang Macroeconomics’ account—thank you! Summary: U.S. CPI rose 3.7% year-on-year in September, whereas China’s rose only 0.9%. Facing the same surge in international oil prices, why do the two countries’ price trends diverge so sharply? From energy costs and consumption data to income distribution and growth models, the contrast in U.S.-China inflation reveals a critical insight: what ultimately determines price trends is not just interest rates—but rather residents’ incomes and purchasing power. I. U.S. consumer prices rose 3.7% year-on-year in September—far exceeding the Federal Reserve’s target. One scenario features policy rates already hiked to 4%, yet inflation is rebounding again; the other sees sustained rate cuts and stimulus measures, yet price gains remain below 1%. Facing identical international energy price increases, why is the U.S. worried about inflation rebounding, while China worries more about prices failing to rise? On October 14, the U.S. Bureau of Labor Statistics reported that U.S. CPI rose 0.6% month-on-month and 3.7% year-on-year in September—up from 3.4% in August and above market expectations. Core CPI—excluding food and energy—rose 0.3% month-on-month and 2.6% year-on-year, likewise surpassing August’s 2.4% and market forecasts. Energy prices were a key driver behind this inflation rebound. In September, U.S. energy prices rose 5.2% month-on-month, and gasoline prices surged 9.1% month-on-month—accounting for over half of the monthly CPI increase. Over the past 12 months, U.S. gasoline prices have risen 34.2%, heating oil prices 74.2%, and the overall energy index 20.4% year-on-year. However, U.S. inflation is not entirely oil-driven. In September, food prices rose 2.5% year-on-year, housing prices rose 0.4% month-on-month, and service prices continued to face upward pressure. Airfares, healthcare, apparel, and used cars all posted varying degrees of price increases—indicating that pricing pressures are spreading beyond the energy sector. This suggests that even if international oil prices retreat, U.S. inflation may not quickly return to target. Energy shocks, compounded with rising service costs, resilient consumer demand, and broad-based goods price increases, place the Fed in a far more complex position. The Fed has long targeted 2% inflation. In September 2026, it raised the federal funds rate target range to 3.75%–4.00%, yet prices rebounded nonetheless. Following the September CPI release, U.S. Treasury yields rose, and market expectations for further monetary tightening strengthened. The crux lies here: rate hikes can curb borrowing and demand—but they cannot directly increase oil supply, nor instantly eliminate cost shocks arising from geopolitical conflict. If U.S. consumer demand remains resilient—and firms, buoyed by strong demand, readily pass on cost increases to consumers—inflation may persist above target. II. China’s consumer price index rose 0.9% year-on-year in September—well below the 2% control target. In contrast, China’s situation is nearly the opposite. According to data released by China’s National Bureau of Statistics on October 14, national CPI rose 0.9% year-on-year in September—0.1 percentage point higher than the previous month; month-on-month, it rose 0.2%, a 0.2-percentage-point slowdown from the prior month. Core CPI—excluding food and energy—rose 1.0% year-on-year, unchanged from the previous month.

US Inflation Accelerates to 3.7% Driven by Energy and Food Costs

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U.S. inflation rose to 3.7% in September, fueled by higher gasoline, diesel, and food ingredient prices, leading to increased borrowing costs and forcing manufacturers like PepsiCo to raise product prices.

apnews

2026-10-15

US Inflation Accelerates to 3.7% Driven by Energy and Food Costs

US Inflation Accelerates to 3.7% Driven by Energy and Food Costs

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