Consumer inflation runs hotter than forecast, keeping Fed hike bets alive

What did the September inflation report show?

The Bureau of Labor Statistics said Wednesday that consumer prices rose faster than economists expected in September. The Consumer Price Index, the government's monthly consumer-price report, tracks what households pay for goods and services. Its annual rate sped up from August and came in above forecasts. The monthly change matched expectations.

Why it matters: Core inflation strips out food and energy, which swing with weather and oil markets. It is the measure the Federal Reserve watches most closely. Core prices rose faster than forecast both month over month and over the past year. Headline and core rates both remain above the Fed's inflation target.

What pushed prices higher?

Gasoline did most of the work. The BLS said the gasoline index accounted for the bulk of the monthly increase. The wider energy index also climbed. Food prices were flat on the month, and groceries eaten at home dipped slightly.

Pressure also built outside energy. Shelter, the largest part of the index, rose faster than in August. Rent climbed. So did owners' equivalent rent, an estimate of what homeowners would pay to rent their own home. Used cars and airline fares also got more expensive.

How did stocks and bonds react to the report?

Stocks fell on Wednesday. The S&P 500 slid 1.1% to close at 7,718.94. The Nasdaq-100, which leans heavily on technology, fell 2.0%. The Dow Jones Industrial Average, a narrower gauge of large companies, edged down 0.1%.

The declines were broad. In all, 876 stocks fell, against 472 that rose. The technology sector fund tumbled 3.0%. Defensive groups, which sell things people buy in good times and bad, held up better. The consumer staples fund jumped 2.2%, and the health care fund climbed 2.5%.

A bond's yield is its yearly interest measured against its price. The 2-year Treasury yield, the bond most tied to Fed policy, rose 3 basis points to 4.82%. The 10-year yield edged down 2 basis points. The gold fund (GLD) slid 1.5%. Gold pays no interest, and it can lose appeal when rates look set to stay high.

What could the report mean for Fed interest rates?

The Fed raised its benchmark rate in September in a unanimous vote. Officials' median projection at that meeting pointed to another increase before year-end. The new report kept bets on a further hike alive.

Traders remain divided. On the prediction market Polymarket, traders still leaned toward no change in October, though they gave a hike sizable odds. The report also carried some softer signs. The monthly headline change matched forecasts, and food prices were flat. Still, the BLS data showed price pressure building outside energy.

The next checkpoints arrive soon. The Producer Price Index for September is due Thursday, Oct. 15, at 8:30 a.m. ET, along with September retail sales. It tracks the prices businesses receive. The Fed announces its rate decision on Oct. 28 at 2 p.m. ET. The PCE price index follows on Oct. 29, and October consumer prices arrive Nov. 10.