US inflation has surged to 3.7% in the year leading up to September, exceeding expectations and marking the final data release before the midterm elections next month. This increase from 3.4% in August was primarily driven by higher gasoline prices, which have spiked due to disruptions in Middle East energy supplies stemming from the US-Israel conflict with Iran. The rising cost of living has become a central issue in the upcoming elections, with voters across the country feeling the pressure.
The consumer price index (CPI), which measures inflation by tracking the price changes of various goods and services, reflects the broader economic impact of these price increases. The Bureau of Labor Statistics, which has been measuring inflation for over 110 years, updates the basket of goods it tracks to align with changing consumer habits. For instance, early data included items like ice, which has since been replaced by refrigeration costs.
Several factors contribute to inflation, including supply and demand imbalances. The recent surge in crude oil prices, which has risen from just over $70 a barrel to over $100 due to the conflict, illustrates how supply disruptions can drive up prices. Additionally, tariffs imposed by President Donald Trump have also played a role in increasing inflation. Research from the Federal Reserve Bank of New York found that higher tariffs led to nearly a 0.25% price increase for consumer goods after one year.
While current inflation rates are above the Federal Reserve's target of 2%, they have been significantly higher in the past. During the Covid pandemic and the early stages of the Russia-Ukraine war, inflation peaked at around 9%. Although inflation is now rising at a slower rate, it does not mean prices are decreasing, just that they are increasing at a slower pace. A moderate level of inflation is considered beneficial for the economy, encouraging spending and investment.