US inflation rises to 3.7% as energy prices surge

Inflation in the United States rose to 3.7% in September, up from 3.4% in August, as the war with Iran continued to drive up energy prices.

It is the highest rate since May, when inflation reached a three-year peak of 4.2%, and the last inflation report before November's midterm elections.

Energy drives the rise

Petrol accounted for more than half of the overall increase, with prices up 34% on a year earlier. Fuel oil, used to heat homes, was up 74%, a worrying sign for households going into winter, and air fares rose 22.4%. Diesel, which powers supply chains, reached a record high last month.

Prices rose 0.6% between August and September. Core inflation, which excludes volatile food and energy, rose by 0.3% in the month to an annual rate of 2.6%.

Research from Brown University suggests higher energy prices caused by the Iran war have cost American households more than $1,020 each, $133bn in total.

Political fallout

September's rate is the highest before a midterm election since 1990, apart from during the pandemic. A Reuters/Ipsos survey found 78% of Americans blame the administration's policies for inflation outpacing their earnings, including 57% of Republicans who support Donald Trump.

Trump has blamed Iran, and accused Yemen's Houthi movement of attacking Saudi Arabia to drive up oil prices before the elections.

Rates going up

Higher inflation puts more pressure on the Federal Reserve, which raised interest rates last month for the first time since 2023. The average 30-year mortgage rate in the US has risen to 7.4%.

"Inflation in the US has come in higher than expected, in a blow to Donald Trump ahead of November's midterms," said Richard Carter, of the investment manager Quilter Cheviot.

Why it matters in Britain

The same forces are pushing up prices in the UK. Oil and gas are priced on world markets, so the conflict in the Middle East has raised petrol, diesel and energy costs here too. The International Monetary Fund expects UK inflation to average 3.3% this year.

US interest rates also influence borrowing costs around the world. When the Federal Reserve raises rates, it tends to push up yields on government bonds elsewhere, including UK gilts, which in turn affects mortgage rates and the cost of government borrowing.

The Bank of England is widely expected to raise its own rate at its meeting next month, which would push up mortgage and loan costs for many households in Birmingham and across the country.

A strong dollar and higher US rates can also weaken the pound, making imported goods more expensive for British consumers and adding further to inflation.