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Inflation climbed to a 4-month high in September as the Iran war continued to drive up gasoline prices, according to federal government data released on Wednesday. The reading came in slightly above economists’ expectations.
Prices rose 3.7% in September compared to a year earlier, marking an uptick from an annual inflation rate of 3.4% in the prior month.
Inflation stands well above a rate of 2.4% recorded in February prior to the outbreak of the Iran war.
The fresh data arrived as affordability marks a top concern for voters ahead of early November’s midterm elections.
Gas prices jumped more than 9% in September from August, accounting for more than half of the overall price increase last month, the U.S. Bureau of Labor Statistics said. Shelter prices — which include home-owner payments and rental charges — also rose in September.
Food prices proved stable, however. The price of food stayed flat in September from August, putting annual inflation for food at 2.5%. That figure, which includes prices for groceries and food eaten away from home, stands well below the annual pace of overall price increases.
The Middle East conflict drove up fuel prices and catapulted inflation to a three-year high in May, but inflation eased slightly over the summer after a preliminary peace agreement established an on-again, off-again pause in fighting.
The tentative accord between the U.S. and Iran expired in August, however, giving way to continued attacks on oil infrastructure and ships in the region.
Oil exports from the Gulf have improved in recent weeks but heightened shipping costs and persistent risks have kept the national average gas price above $4.30 a gallon, AAA data shows. Prior to the Iran war, the average price of U.S. gas stood below $3 a gallon.
Diesel prices, which feed into supply costs for groceries and just about every other product bought in stores, stood at $6.29 a gallon, according to AAA. That figure amounts to an increase of about 66% since the outbreak of the Iran War.
Last month, consumer sentiment dropped close to the lowest level ever recorded in the 74-year history of the University of Michigan’s monthly survey.
By some measures, the economy remains robust.
Gross domestic product grew over three months ending in June, defying fear of a downturn triggered by the Iran war. Consumer spending, which accounts for about two-thirds of U.S. economic activity, rose 0.6% in August from July, the largest monthly increase since March 2025, government data on last month showed.
In other areas, however, the economy has wobbled. The inflation report came days after monthly jobs data showed sluggish hiring in September.
Employers added 29,000 jobs last month, a sharp slowdown from 162,000 jobs added in August, the U.S. Bureau of Labor Statistics said earlier this month. The figure came in well below economists’ expectations.
Prior to the latest jobs report, hiring had proven largely resilient this year, even as shoppers and businesses weathered higher costs.
The combination of elevated inflation and a sturdy labor market prompted the Fed to raise interest rates a quarter of a percentage point last month, marking the central bank’s first rate increase since 2023.
“The plain fact is that inflation is too high and has been for too long,” Fed Chair Kevin Warsh said at a press conference in Washington, D.C., last month.
In theory, an increase to the benchmark interest rate should slash inflation by slowing the economy and eating away at demand, though the policy typically yields results after a lag time lasting several months.
The next meeting of Fed policymakers takes place on Oct. 28, just days before the midterm elections. Investors peg the chance of another rate increase at nearly 25%, according to CME Group’s FedWatch Tool, a measure of market sentiment.
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