US consumer inflation hotter than expected as midterms loom

Soaring gasoline prices have contributed to accelerating inflation in the United States ahead of November's midterm elections (Patrick T. Fallon)

US consumer inflation was hotter than anticipated in September, government data showed Wednesday, as Washington's war with Tehran pushed energy costs higher, deepening strains on American households ahead of next month's midterm elections.

The uptick underscores voter worries over high costs of living, and comes as President Donald Trump is campaigning in US states to shore up support for his Republican party as it tries to retain control of Congress.

The consumer price index (CPI) rose 3.7 percent year-on-year in September, the Department of Labor said, more than the 3.6 percent analysts forecast according to MarketWatch.

This was a notable acceleration from 3.4 percent in August, in one of the last major economic reports before the November 3 vote.

Inflation picked up pace on a month-on-month basis too, accelerating from 0.4 percent in August to 0.6 percent last month.

The higher-than-expected reading has left analysts divided over the odds of a second straight interest rate hike at the US central bank's upcoming October 27-28 policy meeting.

Economist James Knightley at ING noted that Federal Reserve officials John Williams, Philip Jefferson and Christopher Waller have suggested "that we don't need to see back-to-back interest rate increases," instead leaning towards "a slow and steady" approach.

He expects the Fed will want to be "careful and cautious in terms of its policy tightening."

But traders now see a 51.5 percent chance that the Fed will raise rates by another 25 basis points in October, according to CME Group's FedWatch tool. The probability was around 22 percent a day prior.

Already, industries sensitive to interest rates, like housing, are under pressure from steeper borrowing costs.

Yields on US government bonds spiked after the inflation report. The 10-year Treasury yield, which influences rates on mortgage and auto loans, rose to 5.3 percent from 5.2 percent.

- Spillovers -

Gasoline costs accounted for more than half of the monthly CPI jump, surging 9.1 percent in September, Wednesday's report said.

Energy prices have soared since the United States and Israel attacked Iran in late February, prompting Tehran to block off the Strait of Hormuz, a vital route for oil and gas shipments.

Average prices at US gasoline pumps have surged more than 45 percent since the start of the Middle East war to $4.33 per gallon, according to AAA motor club data.

Diesel prices have soared even more, by 67.7 percent, boosting the cost of transporting goods and threatening further spillovers to consumers.