‘The inflation outlook has become more concerning’: Incomes declined 0.3% and consumer prices jumped 3.6% in September as midterms loom

The Federal Reserve is growing increasingly worried about inflation, as recent data reveals that consumer prices surged 3.6% in September compared to a year ago. This is the highest increase since May and is driven largely by soaring gas prices, which have remained above $100 a barrel due to unrest in the Middle East. On a monthly basis, prices also rose by 0.5%, the highest figure since May.

While soaring energy costs are keeping headline inflation high, underlying pressures are also intensifying. Meanwhile, core inflation, which excludes volatile energy and food prices, rose 3.1% year-over-year in September, up from 3% in August. Despite strong economic growth in the July-September quarter, with the economy expanding at a 3.4% annual rate, inflation is eroding consumer incomes, with inflation-adjusted incomes declining 0.3% in September.

This trend is likely to weigh on consumer demand in the coming quarters, as consumers may resort to using savings or credit to finance spending. The Federal Reserve, responsible for addressing inflation, recently kept interest rates unchanged, but strong growth and persistently high prices could lead to more rate hikes, raising borrowing costs across the economy.