US inflation rises more than expected – here's what is happening with pricesThe pace of price rises increased to 3.7% in the year to September, driving by higher motor fuel costs.41 mins agoBusiness

US inflation rose by more than expected in the year to September, according to official figures, in the final data release before the midterm elections next month.

The pace of price rises increased to 3.7%, up from 3.4% in the 12 months to August.

Inflation was above forecasts, driven by higher gasoline prices which have risen following disruption to Middle East energy supplies due to the US-Israel conflict with Iran.

The elections are being fought over cost of living pressures across the US.

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

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

Officials from the Bureau of Labor Statistics measure inflation through the consumer price index (CPI).

It tracks the price changes of hundreds of day-to-day items including fresh food, gasoline and medical services to work out the overall level of inflation in the US economy.

The bureau updates this so-called basket of goods over time as peoples’ spending and lifestyle habits change.

There are several factors that can cause inflation to rise.

If demand for a product outstrips its supply, that can lead to producers raising prices – the craze for Labubu dolls in recent years and the high resale prices are an example.

Higher incomes can also lead to higher demand, for example, which in turn pushes up prices.

Supply can also affect inflation. If supply of a product is reduced, but demand remains constant, that can cause prices to rise. A good example of this 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 constricted crude supplies, the price quickly rose and is currently over $100.

Inflation has risen to 3.7% in the year to September, which is a higher-than-expected increase fuelled by gasoline prices.

Car fuel prices jumped by 34.2% over 12 months.

In September alone, they jumped by 9.1%, accounting for more than half of the increase in inflation, according to the Bureau or Labor Statistics.

Overall, energy inflation was up by 20.4% over the year as prices for fuel oil, energy services and electricity climbed. Fuel oil, used in home heating, was up 74.2% over the year.

Experts said the US Federal Reserve – which sets the country’s interest rate – will be closely watching to see if energy costs begin to affect other areas of the economy, such as food prices, and drive inflation higher.

At the moment, food inflation remains subdued. It was flat over the month of September, and was 2.5% across the year.

Core inflation, which strips out food and energy prices, was 2.6%.

Shortly after the latest inflation figure was released, the Social Security Administration announced that Social Security benefits including old age, survivors and disability insurance would rise by the same amount – 3.6% – in 2027.

The administration said that the 3.6% rise will mean an average retirement benefit increase of $75 a month.

The cost of living adjustment will take effect in January for about 72m people, while increased payments for the 7.2m receiving the supplemental security income will start on 31 December.

Since coming into office for the second time, President Donald Trump has introduced tariffs on most US trading partners around the world.

While most of the additional global levies were outlawed by the Supreme Court in February, the president immediately announced a new 10% global tariff to replace them.

Trump argued the tariffs would increase America’s tax earnings, boost manufacturing and encourage people to buy US-made goods, but the higher import taxes have also had an impact on inflation, according to research from the Federal Reserve Bank of New York.

Higher tariffs – which are levies that businesses pay on the goods they import – directly raise prices for US companies unless the overseas firms they are buying from lower prices to absorb some of the cost.

In response to the new tariffs, the New York Fed found exporters reduced prices very little, meaning US-based businesses ended up absorbing nearly 90% of the cost of the added tax.

Indirectly, higher tariffs also affected the prices of locally made goods, as many US producers rely on parts or materials from overseas.

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

While inflation is currently above where the US Federal Reserve would like – it has a target of 2% – it has been much higher in previous years.

During the Covid pandemic, issues such as supply chain disruption started pushing inflation up.

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

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

It’s important to note that if inflation is rising at a slower rate, that does not mean prices are going down – it simply means prices are rising at a slower pace.

A bit of inflation is considered good for an economy as the the Federal Reserve’s target rate illustrates.

Many central banks consider inflation of about 2% or a little higher to be stable, and at a level that doesn’t impact people’s purchasing decisions.

Much below that, people can delay spending if they expect price rises to slow further, or to fall. That can lead to businesses reducing wages, or reducing the number of workers to cope with lower demand.