Petrol pushed US inflation to 3.7%, and the Fed's next meeting is suddenly live

American consumer prices rose 3.7% in the year to September, up from 3.4% in August. Economists expected 3.6%.

Most of the surprise came from the petrol pump. Petrol prices rose 9.1% in September alone, and that was more than half of the month's 0.6% rise in prices. Core inflation, which leaves out food and energy, ran at 2.6% for the year, against 2.5% expected.

That was enough to change the sums on interest rates. Before the release, futures traders put the chance of a Fed rate rise on 28 October at about 22%, according to CME FedWatch. By Wednesday morning in New York it was above 40%.

Chart: US petrol prices jump 9.1% in September. Monthly change in US petrol prices, seasonally adjusted, January 2022 to September 2026, in percent. Annual inflation reached 3.7%; core was 2.6%. — This story’s chart of the day: the numbers, the dark version and the animated version are on its own page. The chart’s page →

Bond yields jumped and then gave it all back. The 10-year Treasury yield rose above 5.3% in the morning. It closed at 5.19%, slightly lower than it started.

Borrowers were already paying for higher rates. The average 30-year mortgage rate in the Mortgage Bankers Association's weekly survey reached 7.50% last week.

Worth pondering

whether petrol keeps doing the Fed's thinking for it. Core inflation at 2.6% looks manageable on its own. Our read is that a rate rise aimed at petrol prices would land on mortgage holders long before it did anything about the oil price.

This story ran in Running Hot Thursday 15 October’s edition, with the market snapshot, the other two stories, the numbers and the week ahead. Read the whole edition →

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Wednesday 11 November October's inflation report put a half-point rate rise back on the table
Saturday 7 November America added 165,000 jobs in October, and the bond market heard a December rate rise
Wednesday 4 November The Reserve Bank of Australia raised rates to a level Australians have not seen since 2008

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