September inflation accelerates on energy-price spike

Zandi: lower- and middle-income Americans’ purchasing power is declining

A Labor Department cost-of-living report showed prices in September up 3.7% from a year earlier — a larger annual increase than the month before — with the spike in energy prices a big driver of inflation, NPR’s Scott Horsley reported. Dan North, a senior economist at the insurance company Allianz Trade, said the energy-price spike is getting worse since the war with Iran started eight months ago. “Sometimes on a highway, there’s kind of an exit that says wrong way in case somebody exits there. I’ve got that sign on my charts - this wrong way. That inflation line is going up, not down,” North said. NPR host Steve Inskeep noted in the interview that prices are growing more rapidly than the average worker’s wages.

The Federal Reserve is expected to hold its benchmark interest rate steady at Wednesday’s meeting, while investors are betting that the rate-setting committee will raise rates at its December meeting as the central bank tries to tamp down inflation. The central bank ordinarily tries to fight inflation by raising interest rates, and Fed policymakers did raise rates at their last meeting, in September. Most members of the rate-setting committee have signaled they expect interest rates to go higher this year, even if they are not in a big hurry to raise them at Wednesday’s meeting.

Horsley said investors are betting that the central bank will try to keep a low profile at Wednesday’s meeting, holding rates steady with Election Day just around the corner and then raising rates at the December meeting. Two things would change in the meantime: the election would be behind the Federal Reserve, and policymakers would have a couple more months of data showing whether the upward trend in inflation continues.

Federal Reserve Chairman Kevin Warsh and his colleagues have all said they are determined to bring prices under control, though they are not necessarily on the same page about how. The vote to raise rates in September was unanimous. At the previous meeting, when the Fed stood pat, several members of the committee dissented because they wanted a rate hike.

Brian Mulberry, chief market strategist at Zacks Investment Management, said the committee could divide again on Wednesday: “I think that it could be another 9-3 type of a vote - maybe even more divided than that, based on people’s strong opinions of where the direction of inflation is going. But I don’t expect another unanimous meeting at all.”

The broader economy is, in Horsley’s words, “really a mixed bag.” Some parts are booming, including heavy investment in artificial intelligence, which he said is contributing to higher inflation and that no amount of tapping on the brakes by the Fed seems likely to slow. The housing market is in what Horsley described as a “really deep, long-lasting slump,” with mortgage rates north of 7% not helping. Consumer spending so far has been pretty resilient.

Mark Zandi, chief economist at Moody’s Analytics, questioned how long that resilience can last at a time when wages are not keeping up with the rising cost of living: “Lower- and middle-income Americans are having a real struggle. Their purchasing power is actually declining. And that’s a pretty uncomfortable place to be, right? And that likely goes to explain to a large degree why people just don’t feel very good about the economy. They’re pretty upset about the economy.” By contrast, upper-income families are feeling pretty good about the economy, especially if they have money in the stock market, and they are driving a lot of that spending.

Horsley said he expects “a pretty solid GDP report” for July, August and September when the data arrives the next day, adding: “But that’s not much comfort if you’re struggling to put gas in the car and groceries in the cupboard. You know, you can’t eat GDP.”

Separately, FRED’s real gross domestic income series, GDI, stood at 32,752.528 as of Oct. 28, 2026, on a raw basis, according to FRED. The series covers the wage-income side of GDP, a measure the expected output figures do not themselves capture.

Wednesday’s decision is expected to hold rates steady, with the vote itself a question mark after a unanimous increase in September and several dissents at the meeting before that. The larger question sits in December, when the election will be behind the central bank and two more months of inflation data will be in hand.