US inflation rises more than expected ahead of midterm elections

US inflation climbs more than anticipated before midterm elections

US inflation increased by more than expected in the year to September, official figures showed, in the last data release before next month’s midterm elections.

The rate of price growth rose to 3.7%, up from 3.4% in the 12 months to August.

Inflation came in above forecasts, pushed higher by rising gasoline prices, which have jumped after disruption to Middle East energy supplies caused by the US-Israel conflict with Iran.

The elections are being contested against a backdrop of cost of living pressures across the US.

Inflation is the rate at which the price of products or services rises over time.

For instance, if a bottle of milk costs $1 and then rises to $1.10 a year later, annual inflation for bottled milk is 10%.

Officials at the Bureau of Labor Statistics measure inflation using the consumer price index (CPI).

It monitors price changes across hundreds of goods and services, from groceries to clothing, energy and medical services.

These are items people buy for everyday life, and the Bureau of Labor Statistics uses the figures to calculate the overall level of inflation in the US economy.

The bureau, which has tracked inflation for more than 110 years, regularly updates this so-called basket of goods as spending patterns and lifestyles change.

Cars and radios were not part of early data, while ice was later replaced by refridgeration in the energy section alongside fuel and electricity.

Several factors can drive inflation higher.

If demand for a product exceeds supply, producers may raise prices — the craze for Labubu dolls in recent years and the high resale prices are one example.

Higher incomes can also increase demand, which in turn pushes prices up.

Supply can also influence inflation. If supply of a product falls while demand stays the same, prices will rise. A clear example is crude oil, which is used to make gasoline and diesel.

Before the US-Israel war with Iran began, it was trading at just over $70 a barrel, but when the conflict tightened crude supplies, the price quickly climbed and is currently over $100.

Since returning to office for a second term, President Donald Trump has imposed tariffs on most US trading partners around the world.

Some of the initial tariffs announced last year were rolled back by the president as the US reached trade agreements with countries. In February, the Supreme Court outlawed most of the remaining additional global levies.

However, the president immediately announced a new 10% global tariff to replace those struck down by the court.

While Trump said the tariffs would raise America’s tax revenues, strengthen manufacturing and encourage people to buy US-made goods, the higher import taxes have also affected inflation, according to research from the Federal Reserve Bank of New York.

Higher tariffs — levies businesses pay on imported goods — directly increase prices for US companies unless the overseas firms they buy from cut prices to absorb some of the cost.

In response to the higher tariffs introduced by the president, the New York Fed found exporters lowered prices only slightly, meaning US-based businesses absorbed nearly 90% of the added tax.

Indirectly, higher tariffs also influenced the prices of goods made in the US, since many American producers depend on parts, materials or ingredients from overseas.

Overall, the Fed found that every percentage point rise in average tariffs led to nearly a 0.25% increase in consumer goods prices after one year.

Although inflation is currently above the level the US Federal Reserve wants — its target is 2% — it has been much higher in earlier years.

During the Covid pandemic, problems such as supply chain disruption began pushing inflation upward.

Also, in early 2022 when Russia launched its full-scale invasion of Ukraine, oil prices surged above $100 a barrel.

Together, these factors helped drive inflation to a peak of about 9%.

It is important to note that when inflation rises more slowly, that does not mean prices are falling — it simply means they are increasing at a slower pace.

A modest amount of inflation is seen as beneficial for an economy, as the Federal Reserve’s target rate shows.

Many central banks view inflation of about 2% or slightly higher as stable, and at a level that does not affect people’s purchasing decisions.

Far below that, people may delay spending if they expect prices to fall further. That can lead businesses to cut wages, or reduce the number of workers to manage weaker demand.