September CPI Forecast: Energy Costs Drive Inflation to 3.6% Amid Fed Rate Hike Expectations

Key points

• Headline CPI is expected to rise 0.6% in September, with year-over-year inflation reaching 3.6%, moving further from the Federal Reserve's 2% target.
• Core CPI, excluding food and energy, is forecast to increase 0.2% month-over-month and 2.5% year-over-year, marking a slight monthly slowdown but an annual uptick.
• Brent crude oil prices climbed over 14% in September, contributing to a 42% third-quarter advance, with prices trading around $105 per barrel.
• The Federal Reserve is expected to hike interest rates again at its December policy meeting, following its first rate increase in three years last month.
• The September CPI release is the last inflation reading before the November midterm elections, which could determine Republican control of Washington.

Background

The Federal Reserve raised interest rates for the first time in three years last month, signaling potential further hikes. Consumer sentiment has declined across political affiliations in 2026, with steeper drops among Republican and independent voters. The U.S. war with Iran earlier this year has been a significant driver of energy costs and inflation.

How outlets are covering it

CNBC emphasizes the upside risk to CPI due to oil prices, citing Joe Brusuelas of RSM, who warns that models may undershoot actual inflation. Robert Sockin of PGIM notes that sticky oil prices could raise costs in non-energy categories, making it harder for the Fed to dismiss energy inflation as a temporary shock. The Financial Times, behind a paywall, frames the September CPI as a potential determinant for U.S. interest rate policy for the rest of the year, though specific details are not accessible.

Why it matters

Accelerating inflation, driven by energy costs, could force the Federal Reserve to raise interest rates again, impacting borrowing costs and economic growth. The timing of the CPI release before the midterm elections adds political significance, as inflation concerns may influence voter sentiment and electoral outcomes.

What to watch

The producer price index (PPI) is due Thursday, with forecasts of a 0.6% monthly and 5.5% annual increase. The Federal Reserve is expected to hike rates at its December meeting, according to CME’s FedWatch tool. The November midterm elections will determine whether Republicans retain control of Washington, potentially influencing economic policy.