September's Consumer Price Index rose 3.7% from a year ago, up from 3.4% in July and August. Economists had expected 3.6%. Energy costs drove most of the increase. Gasoline prices jumped 9.1% in September alone, accounting for more than half of the month's overall increase. Overall energy prices rose 20.4% over the past year. Diesel hit a record national average of $6.29 a gallon in late September.
Core inflation, which strips out food and energy, climbed to 2.6%, up from 2.4% the prior month. David Royal, chief investment officer at Thrivent, said inflation remains well above the Fed's 2% target and that rate cuts look unlikely anytime soon.
The Federal Reserve raised its benchmark rate in September to a range of 3.75% to 4%. Markets now price in roughly a 50% chance of another hike at the October 27-28 meeting, up sharply from about 20% before this report came out. The Fed meets again December 8-9.
Rising prices and higher interest rates both squeeze cash flow. Most credit cards carry a variable rate tied to the prime rate, which moves with Fed decisions. When the Fed raises rates, your card's APR usually rises within a billing cycle or two. Groceries and retail prices often rise too, since shippers pass along higher diesel costs.
Building an emergency fund now makes sense. Most planners suggest three to six months of expenses in an accessible account. If that feels out of reach, start with one month of expenses first. Automate a small transfer each payday to make the habit stick without extra effort.