The consumer price index (CPI) showed headline inflation at 3.7% year-on-year, above the 3.6% forecast and up from August's 3.4% reading. Core prices, which exclude volatile food and energy, rose 0.3% month-on-month against a consensus estimate of 0.2%, lifting the annual core rate from 2.4% to 2.6%. It was the 67th consecutive month that US inflation has remained above the Federal Reserve's 2% target.
Energy prices were the largest contributor, driven by the ongoing US-Iran conflict. Gasoline surged 9.1% in September, accounting for more than half of the headline CPI increase, while the broader energy index rose 5.2%. However, price pressures also broadened: shelter costs increased 0.4%, used vehicle prices rose 0.7%, and higher prices were recorded for recreation, education, air travel and medical services.
Bond markets reacted swiftly, with the benchmark 10-year Treasury yield rising approximately 7 to 9 basis points during the session. Robin Brooks, a senior fellow at the Brookings Institution, warned that the inflation figures risked reigniting instability across global bond markets.
The repricing extended to Federal Reserve policy expectations. According to Kalshi's prediction market, the probability of a 25-basis-point rate hike at the Fed's October meeting jumped to 55% from 21% before the data release. The Fed raised rates by 25 basis points in September to a target range of 3.75% to 4%, its first increase in more than three years.
Investment strategist Can-Luca Köymen at Sygnum Bank said the stronger inflation reading had reopened the possibility of another increase this month, though the bank still expects policymakers to hold rates steady.
On crypto markets, CoinGlass data showed total liquidations exceeded $220 million over 24 hours, with more than $100 million wiped out in the hour immediately following the report. The forced selling highlighted how quickly traders adjusted to the prospect of tighter US monetary policy.