US Inflation Surges to 3.7%, Highest Since May, Fueling Rate Hike Odds

The primary driver of the surge was energy costs, particularly gasoline prices, which jumped 9.1% in September and accounted for over half of the monthly increase. This rise is attributed to ongoing security tensions and the conflict involving Iran, which disrupted oil supplies through the Strait of Hormuz. Annually, gasoline prices have soared 34.2%, while heating oil prices have seen an astronomical 74.2% increase.

Core inflation, which excludes volatile food and energy prices, also exceeded expectations, rising to 2.6% annually. This indicates that price pressures are expanding beyond energy costs, with housing costs rising 0.4% and used car and truck prices jumping 0.7%. Meanwhile, the U.S. labor market showed signs of slowing, with rising unemployment and fewer jobs added in September.

The concerning data has increased speculation that the Federal Reserve may raise interest rates again at its upcoming meeting at the end of October, with market expectations for a rate hike by December jumping to around 50%. Following the announcement, the dollar strengthened and U.S. government bond yields rose. The inflation data also impacted Israeli markets, causing indices to narrow gains and bond yields to rise, while raising concerns that potential U.S. rate hikes could weaken the shekel and complicate the Bank of Israel's interest rate decisions.