Inflation Jumps Again, Wiping Out Wage Gains

With 20 days to go until Election Day, inflation continues to run hot as high energy prices percolate through the economy. We've got your Wednesday evening update.

Inflation Jumps Again, Wiping Out Wage Gains

Surging fuel prices triggered by the war with Iran helped push inflation sharply higher in September, with the government's consumer price index rising 0.6%, the fastest monthly growth rate since April, the Bureau of Labor Statistics reported Wednesday. On an annual basis, the CPI inflation rate was 3.7%. Both readings were higher than expected.

Gasoline prices rose 9.1% during the month, accounting for more than half of the overall increase in prices. Over the previous 12 months, gasoline prices were up 34.2%.

Factoring out volatile fuel and food prices, the core CPI index rose 0.3% on a monthly basis and 2.6% on an annual basis.

What the analysts are saying: The report suggests that inflation is still very much a problem for the U.S. economy, not least because it means that workers have been losing buying power. Since January 2025, average wages have risen 5.4% - but inflation has risen by the same amount.

"Americans are seeing their pay totally wiped out by inflation," said Heather Long, chief economist at Navy Federal Credit Union. The latest data suggests that the problem is not limited to the energy sector, and rising fuel prices are "starting to spill into other areas," including airfares, used car prices, medical services and apparel. "Many people are worse off," Long said.

Ben Ayers, a senior economist at Nationwide, also expressed concerns about broader inflation. "Obviously we knew there was going to be a spike in energy and fuel prices, but the firm readings for core CPI - which follows up a firmer reading on core CPI in August - those give us concerns that maybe we are seeing more pass-through from fuel prices into other goods and services," he said, per Bloomberg.

Some analysts said the report makes it more likely that the Federal Reserve will raise rates again this year, though perhaps not at its meeting this month due to political concerns.

RSM Chief Economist Joseph Brusuelas noted that "on a three-month annualized basis, inflation is rising at a 4.6% rate, suggesting that action by the Fed is warranted."

That action may well be delayed, though. "There is little evidence of a cooling or a broad-based disinflationary impulse: 60.96% of all prices increased at greater than a 3% pace in September, which captures the underlying pace of inflation," Brusuelas wrote Wednesday. "We expect that because of the proximity of the midterm election, the Fed will remain on hold at its Oct. 28 policy meeting and then lift the policy rate by 25 basis points at its December meeting."

The politics of inflation: A White House spokesperson told Fox News that the inflation report shows that the president is reducing inflation and pointed a finger at former President Joe Biden.

"President Trump is bringing inflation down after it was astronomically high under Biden," the spokesperson said. The spokesperson also noted that the food price index, which was flat in September but rose 2.5% on an annual basis, had remained "unchanged, month-over-month."

Kevin Hassett, the director of the National Economic Council, said he sees a "bunch of good news" in the report. He dismissed the fuel price surge as "temporary" and also blamed some of the current inflation on Biden. "My expectation is that the strength of all the things that we've been doing in terms of getting food prices down and getting drug prices down, that strength is going to motor through," Hassett told reporters outside the White House.

Democrats offered a very different interpretation of the data, saying the latest data shows that Trump has failed to help ordinary Americans. Pete Buttigieg, who served as Transportation Secretary under Biden and is seen as a likely presidential candidate in 2028, pinned the latest inflation numbers on Trump's economic policies. "Inflation is up again. Not because of a pandemic. Not because of a natural disaster. Because of Trump's war, tariffs, and corporate tax breaks," he wrote on X. "It really is this simple: Republicans took over, and then drove up the cost of living in America."

House Democratic Whip Katherine Clark framed the CPI report in terms of the upcoming midterm vote. "The GOP economy is a failure. Inflation remains too high, as families struggle to afford the basics," she said. "House Democrats are ready to win in November and stop this mess."

One conservative commentator, Oren Cass of the think tank American Compass, said the inflation numbers will probably just confirm existing opinions rather than change minds. "With respect to the midterms, in particular, this cake has already been baked," Cass told The New York Times.

Social Security Set for a 3.6% Benefit Boost in 2027

Social Security beneficiaries will get a 3.6% cost-of-living adjustment for 2027, the Social Security Administration said Wednesday. The benefit boost is based on the increase in the consumer price index from the third quarter of 2025 through the third quarter of 2026, which became clear after the release of Wednesday's inflation report for September.

The increase translates to an extra $75.15 a month on average, or about $900 a year, for the roughly 72 million people who get Social Security payments and more than 7 million who receive Supplemental Security Income. The average monthly benefit will rise from $2,087.52 to $2,162.67 effective January 1.

The cost-of-living adjustment is 0.8 percentage points above last year's 2.8% increase and the highest since 2023, after inflation surged.

The latest annual increase drew concern from both senior advocates and budget watchdogs.

The former warned that benefits are failing to keep up with the actual cost of living for many older Americans and that the larger payments will arrive too late to help beneficiaries cope with prices that have already risen.

"When inflation spikes due to a geopolitical event like the Iran war, seniors pay the price," said Shannon Benton, executive director of The Senior Citizens League. "Prices go up today, but benefits stay the same for months due to an outdated COLA methodology. Working people can request a raise or seek a higher-paying position, but seniors have to make lifestyle cuts or drain their savings until the next COLA."

On the other hand, budget watchdogs warned that Social Security's retirement fund is less than six years away from insolvency and that seniors could face a 22% benefit cut in 2032 that would erase years' worth of annual inflation adjustments.

The libertarian-leaning CATO Institute estimated that the cost-of-living adjustment will add $56 billion to Social Security spending next year and called for a change to the inflation calculation used to determine annual benefit changes. The Committee for a Responsible Federal Budget, which advocates for deficit reduction, also said that the Social Security funding shortfall means that changes should be considered to the cost-of-living adjustments for current beneficiaries in addition to reforms for future beneficiaries.

Gas and Diesel Prices Set Costly Records

U.S. gas prices set a record today that President Trump won't want to crow about. The average cost per gallon now stands at $4.33, according to AAA, up from $2.98 in late February, before the start of the Iran war. That means that gas prices have now been over $4 for 158 days this year, topping a record previously set in 2022 under the Biden administration.

"Gas prices remain the highest they've ever been for this time of year," AAA said last week, adding that this is the first year that the national average has been above $4 in October.

The average price of a gallon of diesel, meanwhile, is now $6.30, and this year is on pace to be the most expensive ever for diesel, outpacing 2022, according to analyst Patrick De Haan of Gas Buddy. September was the only month ever in which diesel prices averaged more than $6 a gallon, De Haan said in a post on X, and October is likely to repeat the feat. Those high diesel prices are expected to fuel additional inflation, adding to the economic pressure households face - and the political pressure weighing on the Trump administration.

Quote of the Day

"I think they are hiding stuff that doesn't line up with all the crowing the CEO has been doing."

• Nina Olson, a former national taxpayer advocate, referring to IRS CEO Frank Bisignano in a Politico article describing how the Trump administration "is delaying the release of detailed data showing how Republicans' 2025 tax cuts affected millions of Americans' taxes, even as it tries to sell voters on the law ahead of the midterm elections."

Politico's Brian Faler reports that the IRS typically releases data after each annual filing season, and this year's numbers are eagerly anticipated because they will provide the first details showing the effects of the One Big Beautiful Bill Act.

"The data was scheduled to be released in July, and then updated again in September, as the IRS processed more people's returns -but the agency hasn't published either," Faler writes. "The IRS said it is awaiting approval from the Treasury Department to publish the figures."

Fiscal News Roundup

• Inflation Worsened Last Month to 3.7% in Sign That Prices Remain Elevated as Midterm Elections Near – Associated Press
• Social Security Says Retirees Will Get a 3.6% Raise for 2027 – New York Times
• Judge Extends Pause on Taxpayer-Funded Trump Ads – Politico
• House Democrats Plan a First 100-Days Agenda if They Sweep to Power in Midterm Elections – Associated Press
• Democratic Tax Writers Demand Meta Explain Use of Research Credits Tied to Data Centers – Politico
• Administration Delays Release of IRS Data Showing Impact of GOP Tax Cuts – Politico
• Minnesota Worries It's Not Getting Back $259 Million Trump Froze – Politico
• Over 70% of Americans Rate the Government's Economic Management as Poor - Worst Reading in 48 Years Ahead of Midterms – Yahoo Finance
• House Control All but Gone, Top Republicans Privately Concede – Politico
• Doug Ford Warns Trump's Tariff War With Canada Is Here to Stay – Politico
• Lawyers for Federal Reserve's Lisa Cook Say White House Hearing Set Up by Trump Is 'Biased' – Associated Press

Views and Analysis

• Hot Inflation Data Adds to GOP Midterm Woes – Victoria Guida, Politico
• Trump Was Trying to Force Prices Lower Ahead of the Midterms. But Iran Gets a Vote, Too – David Goldman, CNN
• Why Trump's Diesel Deal With Putin Won't Knock Down High Prices – Aruni Soni, New York Times
• Democrats Need an Agenda, Not Theatrics – Bloomberg Editorial Board
• Democrats Shouldn't Wait Two More Years – David Wallce-Wells, New York Times
• As Progressives Prosper, Centrist Democrats Are Moving the Goalposts – Perry Bacon, New Republic
• Republicans Have a 'Groyper' Problem – Jack Butler, Wall Street Journal
• How Donald Trump, Agent of Chaos, Lost Control – Kate Andrews, Washington Post
• Why Trump's Second Midterms Could Be Worse Than His First – David M. Drucker, Bloomberg
• With No October Surprise in Sight, Republicans Try to Save Themselves – Megan Messerly and Daniel Desrochers, Politico
• The Wealth Tax Stakes in California – Wall Street Journal Editorial Board
• ICE Planning $100 Million 'Nightmare' Domestic Spy Program – Whitney Curry Wimbish, American Prospect
• Trust in Federal Government Sinks to New Depths – Jeffrey M. Jones, Gallup