The Consumer Price Index for September rose by 0.6 percent for the month, or 3.7 percent for year, driven by higher energy and wholesale costs. The core CPI, which removes food and energy gains from the calculation, was up 0.3 percent for the month and 2.6 percent for the year. Gasoline prices are up 9.1 percent and account for half of the increase in the index.
Fed officials usually consider supply shocks; like we have been experiencing with energy due to the war in the Middle East; temporary and will try and look beyond the event when adjusting rates. However, the longer the war goes on, the price hikes may become permanent rather than temporary. Pressure is also coming from demands associated with the AI buildout.
Despite this discouraging report, most traders do not believe the Fed will raise the interest rate at their meeting at the end of the month. But the odds are 96 percent rates will go up before the end of the year, and there is a 50-50 change the hike will be 50 basis points, rather than the usual 25. The market has also shifted and is now a rate hike or two in 2027 has become a possibility.