US inflation rebounded in September! The year-on-year increase in core CPI hit a new high since June, and expectations of the Fed's interest rate hike are heating up

The Zhitong Finance App learned that according to data released by the US Department of Labor on Tuesday, the US CPI rose to 3.7% year on year in September, a new high since May this year, higher than market expectations of 3.6%; the month-on-month increase in CPI rose to 0.6%, a new high since April this year, in line with expectations. The sharp rise in energy prices is a key driver of US inflation — the year-on-year increase in US energy inflation in September reached 20.4%, up from 16.3% last month. Meanwhile, excluding volatile items such as energy and food, the US core CPI rose to 2.6% year on year in September, a new high since June this year, higher than market expectations of 2.5%; core CPI rose 0.3% month-on-month, higher than market expectations of 0.2%.

This latest inflation data marks the first recovery in the US inflation rate since May, highlighting that the energy price shock caused by the Middle East War continues to affect the world's largest economy. After the war broke out, gasoline and diesel prices soared. Although they declined somewhat in the summer, fuel prices rose again in recent months as tension escalated, driving diesel prices to record highs. US President Trump has been trying to control the impact of rising energy prices. Polls show that voters who are dissatisfied with the current situation may turn their dissatisfaction to the Republican Party in next month's midterm elections, which decide where control of Congress belongs.

The recovery in US inflation has increased the market's bets on the Fed's interest rate hike in October, while increasing the bet that the Fed will raise interest rates three more times before the end of 2027. US two-year Treasury yields, which are sensitive to the Federal Reserve's monetary policy, rose 10 basis points to 4.89%; US 10-year Treasury yields rose 10 basis points to 5.318%. The US Dollar Index (DXY) was also higher. International gold and silver prices fell, and futures on the three major US stock indexes turned down.

Some analysts said that the core CPI exceeding expectations will reinforce expectations for further interest rate hikes by the Federal Reserve. The latest communication from the Federal Reserve's policymakers shows that they have not laid the foundation for consecutive interest rate hikes in October. Today's higher-than-expected core CPI increase may not be enough to change that. However, this will reinforce expectations for the Federal Reserve to further tighten its policy, and the September rate hike will almost certainly not be a “one-off action.”