Inflation in the United States is increasingly driven by the surge in diesel prices, which have risen more than 75% since the onset of the Iran war earlier this year. This spike in costs is particularly concerning for economists, as it has widespread implications for other sectors, effectively impacting the overall economy, businesses, and consumers.
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The Bureau of Labor Statistics will release its September consumer price index report on Wednesday at 8:30 a.m., expected to show an increase in the annual inflation rate from 3.4% to 3.7%. Economists anticipate a monthly rise of 0.6%, marking one of the largest increases in years. The price of oil has escalated to over $105 per barrel from approximately $80 since August, contributing to a more than 45% hike in regular gasoline prices since late February.
As early voting starts this week, a higher inflation rate poses a challenge for Republicans seeking to maintain control of both the House and the Senate, especially as polls indicate that inflation and living costs are pressing concerns for voters across party lines. Agricultural states such as Kansas, Iowa, and Texas, traditionally Republican strongholds, are witnessing Democrats gaining ground in Senate races by focusing on economic issues.
In response to rising diesel and gas prices, President Donald Trump has implemented multiple policies aimed at reducing costs, including an executive order to lower diesel prices and efforts to persuade allies to release more diesel stocks. Despite these efforts, their impact remains limited. Recent actions have incurred global criticism, particularly Trump’s decision to ease certain sanctions on Russia to facilitate a diesel supply deal.
Consumer wages have not kept pace with inflation, growing by only 3% as of September compared to higher price increases. However, consumer spending continues at a steady rate. Leaders from major banks report resilience in consumer spending, despite challenges from rising energy prices and tighter monetary policies. Core inflation, which excludes food and energy prices, is predicted to rise to 2.5%, its highest level since June.
Airfare costs are a primary contributor to the increase in core inflation. Economists from Morgan Stanley note that jet fuel prices have surged by 90% compared to last year, which significantly affects airline operating costs and ticket prices. Similarly, the release of new iPhones with price hikes of 10% to 14% may contribute to overall inflation.
Economists at Goldman Sachs expect to see further increases in other consumer categories, including a 0.5% rise in used car prices and a 0.2% increase in new car prices. The forthcoming inflation data will also influence the timing of future interest rate hikes by the Federal Reserve. Governor Christopher Waller indicated the likelihood of more rate increases if economic data continues on its current trajectory.