September Inflation Picks Up, Pushing Treasury Yields Higher
U.S. consumer prices rose 3.7% year over year in September, faster than August's 3.4% and above expectations, as gasoline and shelter costs increased. The report lifted the 10-year Treasury yield above 5.3% and pressured stock futures as traders raised bets on another Federal Reserve rate hike. Higher mortgage rates, weaker consumer sentiment and falling inflation-adjusted earnings added to household strain.
September's consumer price index increased 3.7% from a year earlier, exceeding the 3.6% expected and August's 3.4%. On a monthly basis, prices rose 0.6%, faster than the prior 0.4% gain. Gasoline jumped 9.1%, while the broader energy measure rose 5.2%.
Underlying inflation also firmed: core prices, excluding food and energy, advanced 0.3% for a second month, with the annual core rate at 2.6%. Shelter rose 0.4%, though food was flat and groceries edged lower. The 10-year Treasury yield topped 5.3%, and the two-year neared 4.94%.
If inflation remains elevated, another Fed hike could keep borrowing costs high, potentially squeezing households facing higher mortgage rates. Consumers may see inflation-adjusted earnings decline further, while weaker sentiment could temper spending. Businesses may pass along elevated fuel and transport costs. Investors could face continued volatility as Treasury yields and rate expectations shift.