The consumer price index (CPI) report for September is expected to reveal a rising inflation rate, with economists projecting a 0.6% increase month-over-month and a 3.6% increase year-over-year. These figures indicate that inflation is accelerating and diverging further from the Federal Reserve’s target of 2%. Core inflation, which excludes food and energy prices, is predicted to rise by 0.2% monthly and 2.5% on an annual basis. Although the monthly gain in core inflation signals a slight slowdown, the yearly increase points to persistent inflationary pressures.

Energy costs continue to heavily influence inflation trends, particularly due to recent geopolitical tensions involving the U.S. and Iran. Joe Brusuelas, chief economist at RSM, highlights that oil-related prices could push the headline inflation rate even higher. Brent crude prices surged by over 14% in September, finishing the third quarter with a 42% gain and trading near $105 per barrel. Despite efforts by President Donald Trump to loosen diesel restrictions on Russia to stimulate the oil market, analysts remain skeptical that these moves will lead to a significant drop in prices.

The persistence of high oil prices presents a risk of broader inflation spillovers into other sectors of the economy, making it challenging for the Federal Reserve to view rising energy costs as a temporary shock. Robert Sockin, chief U.S. economist at PGIM, warns that sustained energy price inflation could necessitate further interest rate hikes to rein in inflation. The Fed, after a rate increase in September, has hinted at additional hikes later this year, with market expectations focused on the December meeting as the likely timing for further tightening.

This September CPI reading is the last before the upcoming midterm elections, which hold significant political implications, especially as voter economic confidence has declined. Poll data from the University of Michigan reveals sharper drops in sentiment among Republicans and independents compared to Democrats this year. The producer price index, set to be released shortly after, is also forecast to show modest inflation acceleration, underscoring ongoing inflationary challenges as policymakers and markets closely watch these economic signals ahead of the elections.