New inflation data comes in hotter than expected as prices remain high ahead of midterms

Inflation heated up to 3.7% annually last month as energy prices soared, according to the latest Consumer Price Index data.

The latest reading came in hot, accelerating from 3.4% in August and outpacing economists' expected 3.6% jump. On a monthly basis, prices rose 0.6% in September from 0.4% a month earlier.

Gas prices were a particularly large driver of the jump, rising 9.1% month-over-month. Average prices at the pump hit a record $4.33 last month, according to AAA data, nearly $0.50 above the previous monthly record set in 2023. 

Fuel oil, which millions of Americans, primarily in the Northeast, use to heat their homes, was another pain point, spiraling 15.3% from August just before the cold months set in.

"Core" inflation, which strips out volatile food and energy prices and is watched more closely by Federal Reserve officials, was also hotter than expected, rising 2.6% annually, up from 2.4% in August. Monthly core inflation was unchanged from August's hotter-than-anticipated 0.3% but also came in higher than the 0.2% economists were expecting.

On a core basis, the cost of travel and leisure was a major driver of inflation. Car rental costs rose 5.4% from a month earlier, while hotels were up 2.3%. Football and soccer fans are also paying up, with the average cost of a sporting event ticket up 7.6%.

The hot readings increase the odds that the Federal Reserve will hike benchmark interest rates later this month, rather than waiting until December.

"This makes the October meeting live," Stephanie Roth, Wolfe Research chief economist, told Yahoo Finance.

Traders see a 44% chance of a 25 basis point hike this month, up from about 24% before the inflation data was released.

Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.

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