Anabelle Colaco
16 Oct 2026

WASHINGTON, D.C.: The chances of another U.S. interest rate increase jumped sharply on October 14 after hotter inflation data showed gasoline costs surging and underlying price pressures proving stronger than expected in September.

Financial markets raised the probability of a rate hike at the Federal Reserve's meeting on October 27 and 28 to roughly 52 percent, from about 22 percent before the Consumer Price Index report was released, according to CME Group's FedWatch Tool.

The CPI increased 0.6 percent in September after rising 0.4 percent in August, the Labor Department's Bureau of Labor Statistics said. The monthly increase was in line with economists' expectations.

On a year-over-year basis, consumer prices rose 3.7 percent, accelerating from 3.4 percent in August.

A 9.1 percent jump in gasoline prices accounted for more than half of the monthly CPI increase. Energy prices have been driven higher by the U.S.-Israeli war with Iran, while diesel prices have reached record highs, raising concerns that increased transportation costs could soon feed through to supermarket prices.

Price pressures also broadened beyond energy.

Excluding volatile food and energy components, core CPI rose 0.3 percent in September, matching August's increase but exceeding the 0.2 percent rise economists polled by Reuters forecast.

Core inflation rose 2.6 percent in the 12 months through September, up from 2.4 percent in August.

"The last mile back to target could remain bumpy and keep interest rates elevated," said Jeffrey Roach, chief economist at LPL Financial. "The report complicates the Fed's decision this month, as the road back to price stability is looking increasingly difficult to navigate."

Shelter costs increased 0.4 percent, including hotel and motel rooms, while owners' equivalent rent rose 0.3 percent. Used car and truck prices increased 0.7 percent, airline fares climbed 1.2 percent, and apparel prices gained 0.3 percent.

Food prices were unchanged after increasing 0.1 percent in both July and August. Grocery prices slipped 0.1 percent from the previous month but were 1.8 percent higher than a year earlier.

The Fed raised its benchmark overnight interest rate by 25 basis points in September to a range of 3.75 percent-4.00 percent, its first increase in three years, and signaled further increases in borrowing costs could follow.

Before Wednesday's inflation report, expectations for another increase this month had diminished following weaker-than-expected September payroll growth and cooler Personal Consumption Expenditures inflation readings for July and August. Economists had expected the Fed's next rate increase in December.

U.S. Treasury yields were mostly higher following the inflation data, while the dollar strengthened against a basket of currencies and U.S. stocks opened lower.

The Social Security Administration separately announced a 3.6 percent cost-of-living adjustment for Social Security and Supplemental Security Income benefits for 2027.