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The Bureau of Labor Statistics (BLS) released the highly anticipated September Consumer Price Index (CPI) report on Oct. 14, weeks before millions of Americans head to the ballot box for the midterm elections. The data was not quite what President Donald Trump or the Republican Party wanted. Heading into Nov. 3, voters will likely have hot inflation on their minds.
Inside September's Hot Inflation
The US annual inflation rate surged to 3.7% last month, from 3.4% in August. This was well above the consensus estimate of 3.6%. On a monthly basis, consumer prices rose 0.6%, up from 0.4% the previous month.
Gasoline was the main culprit, accounting for more than half of September's increase. Shelter also added to inflation pressures by rising 0.4%.
Excluding volatile energy and food prices, the 12-month core inflation rate was slightly tamer, ticking up to a higher-than-expected 2.6% from 2.4%. Core CPI also jumped 0.3%, topping market forecasts. In other words, underlying inflation trends are more moderate.
While pain at the pump is driving hot inflation, workers are feeling the squeeze regardless. In a separate report, the federal agency said real (inflation-adjusted) average hourly earnings fell by 0.5% in September. Real average weekly earnings also tumbled by 0.5%.
Futures markets are now split on whether the Federal Reserve will follow through on back-to-back interest rate hikes later this month. Before the inflation data, traders largely expected the central bank to postpone another increase until the December policy meeting, but now investors are less sure officials will be patient. The Fed raised rates last month to prevent second- or third-order inflation effects from the war-driven oil price shock.
The US Treasury bond market suggests investors do not see higher energy prices filtering through the broader economy. Despite an initial spike, Treasury yields fell across the board, and the benchmark 10-year yield is now about 20 basis points below last week's 24-year high.
The White House can take a deeper look at the CPI and spin the hot inflation numbers. Conservative talking heads can contend that it is just oil and gas. But voters hate inflation, and they will punish the ruling party if a carefully constructed narrative insults their intelligence – and their wallets.
Cost of Living Blues
President Trump promised to bring down inflation if he returned to the Oval Office for a second term. To his credit, despite his sweeping global tariff plans, aggregate inflation had been slowing. Then the war in Iran happened, and since then everything has been heading in the wrong direction.
According to Liberty Nation News' Public Square polling data, the president is firmly underwater on the economy and inflation. Because of the affordability issue, prediction markets suggest the Democrats could take the House and Senate next month.
Does this mean the Democratic Party will pursue and implement policies that will suddenly restore affordability after fumbling the ball in 2021? Senior Political Analyst Tim Donner, in an Oct. 3 piece titled “Fool Me Once: Can the Left Be Trusted to Deliver Affordability?” shared his thoughts on the matter:
"Absent any indication that they have changed their ways, the presumption is, has to be, that if we put the same policymakers back in charge, they will pursue the same policies – and produce the same results."
‘Fact of Life’
Inflation is a stubborn thing, trending above the Federal Reserve's 2% target for 67 consecutive months, the third-longest run since 1949. Elevated inflation has become the new normal for the American people, says Cleveland Fed President Beth Hammack. “They’re starting to accept high inflation as just a fact of life,” she wrote on X. “That’s concerning.”
Will anyone restore inflation to the glory days of 2019 when the Fed could barely get it to 2%? Only if Elon Musk is right and the robots flood the streets.
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